European stocks edged lower on Monday as investors assessed developments in the Persian Gulf alongside expectations for an interest-rate increase from the European Central Bank later this week.
The pan-European STOXX 600 declined 0.1%, remaining near multi-week lows. Germany’s DAX and France’s CAC 40 traded in narrow ranges as markets weighed higher energy prices and the outlook for interest rates.
Iranian authorities have indicated plans to establish a restricted zone outside the Strait of Hormuz in the coming days. The announcement follows U.S. strikes that disabled three Iranian oil tankers over the weekend.
Washington said the strikes were carried out in response to an Islamic Revolutionary Guard Corps ballistic missile attack targeting two U.S. Navy warships in the region.
Oil prices rose a further 1% on Monday after gaining nearly 10% over the previous week, with Brent crude trading above $90 a barrel.
The Strait of Hormuz handles roughly 20% of global seaborne oil and gas flows, making developments affecting transit through the waterway relevant to European energy costs and industrial supply chains.
ECB rate decision approaches
European markets were also focused on Thursday’s European Central Bank monetary policy meeting, with money markets pricing in a 25-basis-point interest-rate increase.
Expectations for higher rates follow preliminary August data showing annual headline Eurozone inflation accelerating to 3.3%, with the energy component rising 14.3%.
European sovereign bond yields remained elevated ahead of the decision, with Germany’s 10-year Bund yield trading near multi-year highs.
Higher borrowing costs are also being assessed for their potential impact on rate-sensitive industries, including real estate and construction.
U.S. inflation data also in focus
Investors are awaiting U.S. Consumer Price Index data scheduled for later in the week as markets assess the outlook for the Federal Reserve’s September 15-16 policy meeting.
The inflation report follows Friday’s U.S. nonfarm payrolls data, which showed the economy added 162,000 jobs in August.
The CPI figures are expected to provide further information on inflation ahead of the Federal Reserve meeting and could affect market expectations for the path of U.S. interest rates.
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