Europe’s Stoxx 600 falls as oil prices jump, but secures fifth monthly gain

On August 31, European stocks slid as fresh US-Iran military confrontations pushed oil prices and bond yields higher, though the Stoxx 600 index recorded its fifth consecutive monthly increase. The pan-European Stoxx 600 index declined by 0.6% to 651.1 points, with trading activity slowed as London markets observed a bank holiday.

Germany's DAX fell 1.2%, the sharpest drop among principal regional indexes, following a report indicating German inflation accelerated in August due to the Iran conflict raising energy costs. However, the increase was less than anticipated, with core inflation remaining unchanged. Investors had largely anticipated a September interest rate hike from the European Central Bank.

Carsten Brzeski, global head of macro at ING, commented, "The stage appears increasingly set for another rate hike at next week's ECB meeting. The second rate hike this year would also qualify as an 'insurance rate hike,' or perhaps more to the ECB's preference: a rate hike to bolster the ECB's credibility and pre-empt potential indirect or even second-round effects from the ongoing energy price shock."

Eurozone inflation figures and US employment data will be closely watched later in the week. Germany's policy-sensitive two-year government bond yield reached its highest level since July 2024, influenced by US Treasuries after Federal Reserve Chair Kevin Warsh suggested interest rates could need to rise. Energy stocks surged, mirroring a more than 2% rise in Brent crude, which traded near $90.5 a barrel.

TotalEnergies, Orlen, and OMV increased by 1.5% to 3.5%. US forces carried out missile strikes on two Iranian missile launchers in the Strait of Hormuz on Sunday, the initial known US military action against Iran since late July. In response, Tehran attacked two US air bases in Jordan, according to Iranian media reports. While the surge in energy prices has heightened inflation concerns as investors brace for additional policy tightening, a robust earnings season and ongoing interest in artificial intelligence helped the Stoxx 600 rise 0.3% in August.

G20 finance leaders convened in North Carolina on Monday and Tuesday, as heightened energy and commodity prices stemming from the Iran war cast doubt on global growth prospects. Notable movers included Soitec, which rose 6.4% after its CEO announced the French chip materials company was locking customers into multi-year supply agreements with deposits and fixed pricing, and OHB, which gained 6.3% following a nearly €1 billion (US$1.2 billion) contract to develop and build 18 satellites for the European Union's IRIS² secure communications program. Bakkafrost, a Faroese salmon farmer, declined 8.4% after reporting second-quarter results.