European shares subdued as surging crude sharpens focus on ECB rate path

EUROPEAN shares closed flat on Monday (Sep 7) as rising oil prices following renewed US-Iran tensions fuelled inflation worries, offsetting stronger-than-expected euro zone economic data.

The pan-European Stoxx 600 ended at 649.9 points.

The Swiss main index dropped 0.8 per cent. Heavyweight Novartis fell 3.2 per cent after its cholesterol drug failed in a closely watched study.

Germany’s DAX fell 0.2 per cent. Over the weekend, the country’s far-right AfD topped a state election in Saxony-Anhalt with 44 per cent of the vote, dealing a major blow to Chancellor Friedrich Merz.

It remains unclear whether the AfD can form a government for the state as it fell short of an absolute majority. The party advocates tougher immigration curbs, closer ties with Russia, reduced support for Ukraine and a withdrawal from the euro.

“The AfD’s historic Saxony-Anhalt victory has nudged the DAX lower, but the muted reaction suggests investors see the result as a political warning rather than an immediate economic threat,” Axel Rudolph, chief technical analyst at IG, said.

Euro zone data

Fiscal concerns ahead of next year’s election sent French stocks to two-month lows last week. The stock index was up 0.3 per cent on Monday.

Energy shares gained 1.2 per cent, tracking higher oil prices.

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Brent crude futures hovered near six-week highs and moved closer to US$100 a barrel as strikes on vessels in the Strait of Hormuz and elsewhere heightened fears of prolonged supply disruptions.

Data offered some support for the regional economy. Euro zone investor morale rose to its strongest reading in more than four years in September, while second-quarter GDP expanded 0.6 per cent from the previous quarter and 1.2 per cent year on year, both above expectations.

Trading volumes were thin, with US markets closed for a public holiday.

Rising rate bets

The higher oil prices have fuelled inflation concerns, triggering a global bond selloff last week and strengthening the case for further policy tightening.

The European Central Bank is widely expected to raise rates by 25 basis points on Thursday, while US CPI data this week comes into focus after a strong jobs report boosted expectations of a rate hike by the Federal Reserve this month.

Deutsche Bank now expects the ECB to follow a September move with an additional quarter-point increase in December.

While policymakers have signalled little appetite for further tightening, traders are still pricing in another increase by year-end and one more in 2027.

Among other stocks, Italy’s Lottomatica rose 7.7 per cent after the betting company provided further details on how its proposed merger with Spain’s Cirsa would boost its online business. Cirsa shares rose 6.1 per cent. REUTERS