European stock markets experienced a slight downturn on Monday, as renewed concerns over the conflict with Iran dampened the positive sentiment from easing US inflation worries. The Stoxx Europe 600 index fell by 0.2%, breaking a seven-session winning streak, with consumer goods and personal care sectors leading the decliners.
Brent crude oil prices hovered near $88 per barrel following US President Donald Trump's claim that the United States has "complete control" over the Strait of Hormuz. This statement came amid hardening stances from both Washington and Tehran. Iran has restructured its military to enable more aggressive overseas operations, while negotiations to end the conflict remain deadlocked.
In other market movements, investors are rotating out of traditional defensive stocks and luxury goods shares, shifting capital into beneficiaries of artificial intelligence (AI). A UBS Group index tracking AI winners climbed 2.3%, while an index monitoring stocks considered vulnerable to technological disruption declined. The luxury sector weakened after Deutsche Bank analysts lowered price targets for Hermes and LVMH. Shares of Hermes fell 2.5%, and LVMH dropped 2.9%.
Europe's strong earnings season is nearing its end. Data compiled by Bloomberg Intelligence shows that earnings per share have grown by 17.3%, exceeding analysts' expectations of 11.5%. However, for some investors, this is still not enough to offset the fundamental issues that could weigh on European stocks in the near term. "Strong earnings performance is a necessary condition, but it is not sufficient to drive the market into the next upward phase," said Florian Ielpo, macro head at Lombard Odier Investment Managers. "What Europe needs is either a clear reduction in the cost of capital or a more pronounced acceleration in productivity."
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