European shares flat as oil surge sharpens ECB rate debate
European stocks closed flat as higher oil prices fueled inflation worries, offsetting strong euro zone data and a German political shift.
European shares ended Monday's session flat, as a surge in crude oil prices stoked inflation concerns and offset stronger-than-expected economic data from the euro zone.
The pan-European STOXX 600 index closed at 649.9 points. Switzerland's main index fell 0.8%, dragged down by a 3.2% decline in Novartis after its cholesterol drug failed to reduce heart attack and stroke risk in a key study.
Germany's DAX slipped 0.2% following a state election victory for the far-right AfD in Saxony-Anhalt, where the party secured 44% of the vote. The result is a setback for Chancellor Friedrich Merz, though the party fell short of an absolute majority. Analysts said the muted market reaction suggests investors view the outcome as a political signal rather than an immediate economic threat.
Energy stocks rose 1.2% as Brent crude hovered near six-week highs, approaching $100 a barrel. Strikes on vessels in the Strait of Hormuz and other regions have heightened fears of prolonged supply disruptions.
Supporting the regional outlook, euro zone investor morale hit its strongest level in over four years for September. Second-quarter GDP expanded 0.6% quarter-on-quarter and 1.2% year-on-year, both exceeding expectations. Trading volumes were thin with U.S. markets closed for a holiday.
The oil-driven inflation worries have strengthened the case for further policy tightening. The European Central Bank is widely expected to raise rates by 25 basis points on Thursday. Deutsche Bank now anticipates an additional quarter-point increase in December, while traders are pricing in another move by year-end and one more in 2027.
Elsewhere, Italy's Lottomatica jumped 7.7% after providing details on how its proposed merger with Spain's Cirsa would boost its online operations. Cirsa shares gained 6.1%.