By Pranav Kashyap and Avinash P
March 9 (Reuters) – European shares tumbled to their lowest level in more than two months on Monday, as a sharp surge in oil prices exacerbated inflation fears and the U.S.-Israeli war with Iran showed no signs of easing.
The pan-European STOXX 600 fell for a third straight session, down 1.8%, by 0927 GMT. The benchmark index shed 5.5% last week, marking its worst weekly performance in nearly a year.
The selloff has now dragged the index nearly 8% below its record closing high hit on February 27. Europe’s fear gauge, the STOXX volatility index, vaulted above the 38-point mark for the first time since April.
Europe is heavily dependent on liquefied natural gas and imported oil, which has surged more than 25% to just under $120 a barrel, leaving it particularly exposed to supply shocks. A prolonged conflict could drive energy and transport costs even higher at a time when economic growth is already fragile.
Iran, meanwhile, named Mojtaba Khamenei as successor to his father, Ali Khamenei, as supreme leader – a move seen as reinforcing the grip of hardliners in Tehran.
Frankfurt’s bourse slid to its lowest level in more than 10 months, while Milan and Madrid sank to three-month lows. Paris touched its weakest level in over five months, and London fell to a one-month low.
Oslo, however, extended gains for a fourth consecutive session.
All major sectors in Europe traded in negative territory, with banks – at the heart of last week’s selloff – extending losses and falling 3.2%.
Basic resources led the declines, while rate-sensitive real estate stocks dropped 3.1%. Lufthansa was down 3.9% and Air France-KLM fell 4.1%, as rising fuel costs darkened the outlook for carriers.
Energy stocks rose, while Italian defence group Leonardo gained 2.5%.
German industrial orders fell more than expected in January. Investors were awaiting consumer price data from several European Union countries for further clues on the inflation outlook later in the week.
Expectations of higher interest rates pushed European bond yields to their highest levels in a year.
Markets are now pricing in a 25-basis-point rate hike from the European Central Bank in July, as per LSEG data.
“An energy shock will put upward pressure on inflation and downward pressure on growth, but its severity will depend crucially on how long the conflict will last and what disruptions it will cause,” UBS analysts said.
ECB board member Isabel Schnabel said late Friday that geopolitical volatility posed upside risks to inflation and warranted vigilance from policymakers.
Attention will also turn to comments from ECB President Christine Lagarde, board member Piero Cipollone and euro zone finance ministers, all scheduled to speak later in the day.
Roche dropped 4.6% as the drugmaker’s oral breast cancer drug failed in a trial.
(Reporting by Avinash P and Pranav Kashyap in Bengaluru; Editing by Mrigank Dhaniwala and Harikrishnan Nair)
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