European equities retreated on Monday after a sharp advance last week, as geopolitical risks in Iran and expectations of tighter U.S. monetary policy weighed on sentiment.
The DAX declined 0.9% to 26,338 points, paring a Friday close at a record 26,618.74. The Euro Stoxx 50 slipped 0.4% to 6,458, extending losses from the prior session. Portfolio manager Thomas Altmann of QC Partners noted that most investors expect the latest U.S. military strikes in Iran to remain contained. "The majority of investors do not appear to anticipate a broad and prolonged escalation," he said.
Oil prices surged, with Brent crude rising as much as 3.8% to $91.45 per barrel, lifting energy shares. TotalEnergies, Repsol and Aker BP each gained up to 2.5%, while BP and Shell were not traded due to a public holiday in London. The gains followed the latest U.S. strikes in Iran, which added to supply concerns.
Investor focus also shifted to U.S. monetary policy after remarks by Federal Reserve Governor Kevin Warsh. "Warsh signaled the Fed is prepared to tighten policy further if core inflation stalls," said Elwin de Groot, head of macro strategy at Rabobank. The U.S. Dollar Index held near recent gains at 99.52, reflecting reduced expectations of imminent policy easing.
Mark Haefele, chief investment officer at UBS Wealth Management, said he still expects the Fed to hold rates steady this year, citing signs of easing inflationary pressure. Traders, however, have raised the probability of a September rate hike to 60%, up from roughly 30% before Warsh’s comments.
Bond markets reacted to the oil price surge and rate expectations, with the yield on Germany’s 30-year bund climbing to a 15-year high of 3.797%. U.S. 30-year Treasury yields briefly touched 5.337% last week, the highest since 2007.
In individual movers, Soitec shares jumped up to 4% in Paris after the chip equipment supplier said customers were signing longer-term contracts for silicon wafers, including fixed pricing and upfront payments. CEO Laurent Remont told Reuters demand remains robust amid ongoing supply chain constraints.
Analysts said the mixed drivers—geopolitical risk, policy uncertainty and sector-specific strength—reflect a cautious start to the week for European markets.
