European shares were muted on Monday, as stalled U.S.-Iran peace negotiations pushed oil prices higher and weighed on risk appetite. The pan-European STOXX 600 (.STOXX), opens new tab was flat at 611.68 points, as of 0805 GMT. Regional bourses moved in different directions, with London's FTSE 100 (.FTSE), opens new tab edging 0.2% higher, while France's CAC 40 (.FCHI), opens new tab slipped 0.7%. The Reuters Iran Briefing newsletter keeps you informed with the latest developments and analysis of the Iran war.
U.S. President Donald Trump rejected Iran's response to a peace proposal by Washington, calling it "totally unacceptable." Tehran proposed ending the war on all fronts, including Lebanon, along with compensation for war damage and claimed sovereignty over the Strait of Hormuz, Iranian state TV said.
"While the re-escalation in hostilities interrupted recent optimism over a potential deal that could reopen the Strait, we still believe an eventual diplomatic solution should emerge," said Mark Haefele, chief investment officer, UBS Global Wealth Management. "A resilient economic backdrop and robust earnings growth mean that investors should stay positioned for long-term equity gains through diversified exposure."
The war has shuttered the Strait of Hormuz, a vital waterway for a fifth of global oil and liquefied natural gas flows, with soaring oil prices adding to concerns over the conflict's impact on inflation and growth.
Energy-dependent Europe remains vulnerable, with markets still trading about 4% below pre-war levels and lagging global peers that have rebounded on artificial intelligence-driven optimism.
Defence shares (.SXPARO), opens new tab fell the most, down 2.1%. Germany's Rheinmetall (RHMG.DE), opens new tab and Hensoldt (HAGG.DE), opens new tab dropped 9.2% and 5.6%, respectively. Shares of UK's Rolls-Royce (RR.L), opens new tab, Bae Systems (BAES.L), opens new tab and Babcock (BAB.L), opens new tab shed between 3% and 4.3%. Luxury stocks (.STXLUXP), opens new tab in the region shed 1.6%, with Burberry (BRBY.L), opens new tab and LVMH (LVMH.PA), opens new tab slipping more than 1% each, while Hermes (HRMS.PA), opens new tab lost 2.4%.
The telecommunications index (.SXKP), opens new tab moved higher. BT (BT.L), opens new tab gained 6.5%, while Vodafone (VOD.L), opens new tab rose 2.3%. Martin Kocher, a governing council member of the European Central Bank, warned that the ECB would need to adjust interest rates soon if the inflationary outlook did not significantly improve.
Money markets expect two or more rate hikes from the ECB this year, with the first one expected as early as June. Among other movers, Delivery Hero (DHER.DE), opens new tab advanced 8.2% after Dutch technology investor Prosus (PRX.AS), opens new tab sold a 5% stake in the German food-delivery group to activist investor Aspex Management for roughly 335 million euros ($393 million).
