European stock markets began the trading week in negative territory on Monday, with major indices declining as the escalating conflict in the Middle East—and direct US involvement in it—remained the primary focus for global investors.
The pan-European Stoxx 600 index was down, with nearly all sectors in the red, reflecting a clear risk-off sentiment across the continent.
About 10 minutes into Monday’s trading session, the pan-European Stoxx 600 was trading 0.4% lower. This downturn was broad-based, affecting all major national bourses.
France’s CAC 40 was leading the losses, down 0.7%. Pre-market futures data from IG had already signaled a pessimistic start, with London’s FTSE anticipated to open 0.3% lower at 8,747, Germany’s DAX down 0.4% at 23,222, the French CAC 40 0.5% lower at 7,536, and Italy’s FTSE MIB projected to fall 0.6%.
The catalyst for this market caution was the significant development over the weekend where the United States entered Israel’s ongoing conflict with Iran.
The US launched strikes against three key nuclear sites in Fordo, Isfahan, and Natanz.
This move by US President Donald Trump came as a surprise to many investors, as the White House had indicated just last Friday that a decision on whether to attack Iran would be made “within the next two weeks.”
The immediate impact of these attacks was a further rise in oil prices and renewed fears of a wider, more destabilizing conflict in the Middle East.
This sentiment carried over from Asian markets, which had declined overnight, and was also reflected in US stock futures, which fell ahead of Monday’s session.
The only sector to buck the negative trend in Europe was oil and gas, which benefited from the surge in crude prices.
A contradictory calm? Why markets are brushing off the escalation
Paradoxically, while the US joining the war between Israel and Iran would typically be seen as a major geopolitical flashpoint that could send markets into a tailspin, the immediate reaction, though negative, has been somewhat contained.
Some investors and strategists appear to be, for now, largely shrugging off the escalation.
This seemingly muted response could be rooted in a belief among some market participants that the conflict will remain contained geographically and will not spiral into a larger, global confrontation.
There’s also a contrarian view emerging that suggests this contained conflict could, counterintuitively, be bullish for certain risk assets in the long run, though this perspective is not yet widely held.
However, the potential for global market sentiment to plummet further this week remains high as the situation continues to evolve.
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