European shares muted as oil rises

The pan-European STOXX 600 was flat at 611.68 points

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 was flat at 611.68 points, as of 0805 GMT. Bourses moved in different directions, with London’s FTSE 100 edging 0.2% higher, while France’s CAC 40 slid 0.7%.

The U.S. ​president rejected Iran’s response to a peace proposal by Washington, 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, he said

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 war’s impact on inflation and ‌growth.

Energy-dependent ⁠Europe remains vulnerable, with markets still trading around 4% below pre-war levels and lagging global peers that have rebounded on artificial intelligence-driven optimism.

Defence shares dropped the most, down 2.1%. Germany’s Rheinmetall and Hensoldt declined 9.2% and 5.6%, respectively. Shares of UK’s Rolls-Royce, Bae Systems and Babcock slipped between 3% and ​4.3%.

Luxury stocks slid 1.6%, with ⁠Burberry and LVMH declining more than 1% each, while Hermes shed 2.4%.

The telecommunications index moved higher. BT added 6.5%, while Vodafone advanced 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.