Europe close: Stocks fall as oil prices climb again

(Sharecast News) - European equities closed lower on Monday as renewed tensions between the US and Iran rattled investor sentiment, with fears of a fresh escalation in the Strait of Hormuz pushing oil prices sharply higher. As Patrick Munnelly at TickMill put it, "UK equities weakened on Monday, with the major indices pressured by renewed concerns that the US-Iran ceasefire could unravel, undermining broader risk appetite."

The pan-European Stoxx 600 fell 0.87% to 621.16.

Germany's DAX declined 1.04% to 24,444.33, France's CAC 40 dropped 1.12% to 8,331.05, and London's FTSE 100 slipped 0.55% to 10,609.08.

Oil markets moved in the opposite direction, with Brent crude futures last up 5.58% on ICE at $95.42 per barrel, and the NYMEX quote for West Texas Intermediate gaining 5.9% to $88.80.

Chris Beauchamp, chief market analyst at IG, noted that "despite a surge in oil prices and a rise in the Vix that show market worries about the medium-term outlook refuse to go away."

Markets were unsettled after US president Donald Trump said an American destroyer had fired on and disabled an Iranian-flagged cargo ship in the Gulf of Oman before it was boarded and seized by marines, claiming it had attempted to breach a US blockade.

The move followed Iran's decision to reimpose its own blockade in the Strait of Hormuz and open fire on commercial vessels transiting the key shipping route.

Munnelly said "sentiment deteriorated after the US seizure of an Iranian cargo vessel and fresh disruption to shipping through the Strait of Hormuz, developments that drove crude prices more than 5% higher and weighed on cyclical sectors."

The fragile ceasefire between Washington and Tehran came under increasing strain over the weekend, with initial optimism around the reopening of the strait quickly fading after the US confirmed its blockade would remain in place.

By Monday, tensions had escalated further as Iran warned it would retaliate for the seizure and confirmed it would not participate in a planned second round of talks ahead of the ceasefire's expiry on Tuesday.

Beauchamp said: "Even the smallest dip continues to be an opportunity for buying it seems. What does it matter if the Straits of Hormuz remains closed, so long as the US and Iran are poised to begin talks again?"

Adding to concerns, Trump renewed threats to strike Iranian civilian infrastructure, vowing to target "every single power plant" and "every single bridge" if Tehran did not comply with US demands.

Iranian foreign ministry spokesperson Esmaeil Baghaei said Washington's actions were inconsistent with its stated commitment to diplomacy, describing the cargo ship seizure, continued blockade and delays to a Lebanon ceasefire as "clear violations".

Euro area construction output falls

On the economic front, data from Eurostat showed eurozone construction output fell 0.2% in February, following a revised 1.3% decline in January, marking the fifth drop in seven months.

Belgium and France recorded the steepest monthly contractions at 1.4%, followed by Germany with a 1.2% fall, while Slovenia and Slovakia posted the strongest growth.

Compared with a year earlier, output was down 1.9%.

In the UK, housing data from Rightmove showed asking prices rose 0.8% in April to £373,971, as the market proved "surprisingly resilient" despite higher borrowing costs, with the average two-year fixed mortgage rate climbing to 5.42% from 4.25% before the conflict escalated.

However, agreed sales were 3% lower year-on-year and new buyer demand fell 7%.

Beauchamp warned that "UK unemployment is expected to rise tomorrow, and Wednesday's inflation data is essentially a foregone conclusion," adding that "this reinforces the challenge for the Bank of England."

Meanwhile, UK consumer sentiment weakened sharply, with the S&P Global consumer sentiment index dropping to 42.3 in April from 44.1, its lowest level in 33 months, as rising energy prices reignited inflation concerns and weighed on household finances.

Munnelly added: "The UK data calendar is notably busier this week ... March inflation data on Wednesday should provide a clearer signal, with a widening in the gap between headline and core CPI expected as higher petrol prices feed through."

Energy plays rise, airlines descend on growing oil prices

In equity markets, energy stocks tracked crude prices higher, with Equinor up 2.25%, Aker BP gaining 3.64%, Eni rising 2.5%, BP advancing 2.7% and Shell adding 1.97%.

Airlines came under pressure from higher fuel costs, with Ryanair down 2.84%, Deutsche Lufthansa falling 3.42% and easyJet losing 2.36%.

Loomis dropped 5% after a downgrade by Goldman Sachs to 'neutral' from 'buy'.

Reporting by Josh White for Sharecast.com.