Key facts
- European shares declined due to rising oil prices and inflation concerns.
- Novartis shares dropped significantly after a key drug trial failure.
- The AfD party's electoral success in Germany added to political volatility.
- Energy stocks advanced, mirroring the rise in crude oil prices.
- Expectations for further interest rate hikes by the ECB and Federal Reserve increased.
European shares experienced a slight decline on Monday, primarily driven by a surge in oil prices following renewed strikes between the United States and Iran. This escalation heightened concerns about inflation and bolstered expectations that the European Central Bank (ECB) might continue its interest rate hikes beyond the upcoming meeting.
The pan-European STOXX 600 index was down 0.1% by 0850 GMT. The Swiss main index saw a more significant drop of 1.2%, largely due to the 3.4% fall in heavyweight Novartis after its cholesterol drug failed to meet endpoints in a crucial study. Germany's DAX index also dipped by 0.3%.
Adding to market sentiment, the far-right AfD party secured a significant victory in German state elections in Saxony-Anhalt, winning 44% of the vote. While not securing an overall majority, this result poses a challenge to Chancellor Friedrich Merz and signals potential shifts in policy, including regarding immigration and relations with Russia and Ukraine.
Energy stocks, however, advanced by 1.2%, tracking the rise in crude oil prices. Brent crude futures increased by over $1 per barrel as the conflict in the Strait of Hormuz raised fears of prolonged supply disruptions. Despite these pressures, investor morale in the euro zone reached its highest level in over four years in September, according to a survey.
The market is anticipating a 25 basis point rate hike from the ECB on Thursday. Simultaneously, investors are awaiting U.S. CPI data later in the week, with a strong jobs report having already increased the likelihood of a Federal Reserve rate hike this month. Deutsche Bank now forecasts an additional quarter-point increase by the ECB in December. Traders are pricing in further tightening by both central banks.
In corporate news, Italy's Lottomatica saw its shares rise by 6.8% after providing details on its proposed merger with Spain's Cirsa, which is expected to bolster its online business. Cirsa shares also gained 7%. Trading volumes may be lighter than usual as U.S. stock markets are closed for a public holiday.