European shares hit four-month low

The pan-European STOXX 600 was down 2.2% at 561.11 points

European shares dropped to a four-month low on Monday and ‌were set to confirm a correction as a spike in crude prices raised expectations of interest rate hikes by the European Central Bank amid the escalating Middle East war.

The pan-European STOXX 600 was down 2.2% at 561.11 points after logging its third straight ​weekly loss on Friday.

The index has declined more than 11% from February’s record closing high.

An index tracking ⁠market volatility climbed 4 points to a two-week high of 35.8.

Bank-heavy Spanish and Italian indexes led declines. Financials ​are often seen as most sensitive to economic growth expectations.

Energy price-sensitive airlines such as Air France dropped 5% and Lufthansa shed 4%, while rate-sensitive real estate ​led sectoral declines.

Still, Mark Haefele, chief investment officer at UBS Global Wealth Management said: Investors should stay invested and (be) ​positioned for upside, as trading geopolitical events is rarely a winning strategy.

The STOXX index is down ‌as the ⁠region is dependent on oil imports via the Strait of Hormuz which acts as a conduit for one-fifth of the global oil trade.

The waterway’s closure has stoked inflation concerns, leading investors to now price in at least two 25-basis-point rate hikes by the European Central Bank this year, according to data compiled by LSEG, up ​from zero earlier in ​the year.

Goldman Sachs now expects the ⁠ECB to deliver two 25-basis-point interest rate hikes this year, joining peers J.P. Morgan and Barclays.

Traditional safe-havens sovereign bonds and precious metals also took a hit, with ​the yield on the German benchmark bund hitting 2011 highs.

Spain proposed fiscal measures to ​counter the economic ⁠impact of higher energy costs, bringing back the focus on higher government debt.