European stocks flat as markets weigh Iran tensions, await economic data

On Monday, European shares remained unchanged as traders kept a close eye on U.S.-Iran tensions and anticipated a flurry of economic data that could influence the European Central Bank's policy stance. Investors were on edge, awaiting details of potentially stricter U.S. secondary sanctions on nations with commercial ties to Iran, set to be announced by Treasury Secretary Scott Bessent. Meanwhile, Pakistan's army chief was in Tehran, seeking to re-establish talks with Iran.

Chris Beauchamp, chief market analyst at IG Group, noted the uncertainty surrounding the sanctions and their potential impact on the Iranian economy. If the U.S. actions are perceived as a threat to Iran's economy and prompt a response at the Strait of Hormuz, it could spell trouble for European markets.

The pan-European STOXX 600 index closed flat at 654.21 points. The looming threat of sanctions was fueled by worries of sustained inflation that gripped global markets last week, as U.S. Treasury yields reached a multi-decade peak amid persistent Middle East tensions that kept oil prices high. Sectors such as energy-intensive travel and leisure stocks saw gains of 1.7%, while media and personal and household goods shares rose 1.4%.

The STOXX 600 benchmark has been on a downward trend in recent weeks after hitting record highs earlier in the month, driven by earnings-driven rallies but now weighed down by inflation concerns.

The market is pricing in a more hawkish move from the European Central Bank, with expectations that geopolitical tensions could keep price pressures elevated and push the deposit rate towards 3% by late 2027. Energy-related stocks lagged, falling 1.6% as oil prices declined 1.9%. Defense stocks also slipped 1%. Automobiles and parts were down 1%, despite European electric vehicle sales showing a July uptick.

The technology sector dipped 0.8% ahead of Nvidia's earnings report on Wednesday, amidst ongoing doubts about whether the chipmaker can meet sky-high market expectations.