Europe Stocks Edge Lower as Oil Prices Surge on Iran Conflict

European stocks edged lower on Monday as fresh U.S.-Iran military strikes pushed oil prices and bond yields higher. The pan-European STOXX 600 index was down 0.1% at 655.54 points by 0712 GMT, with trading volumes likely to be subdued due to the London bank holiday. Germany's DAX dropped 0.7%, the most among regional indexes, ahead of inflation data from the euro zone's largest economy that could offer clues on the European Central Bank's rate path.

Investors have largely locked in expectations of a September ECB rate increase. However, with European inflation dynamics coming through this week, this probability may be massaged around the edges, according to Chris Weston, head of research at Pepperstone Group. Energy stocks firmed, tracking a more than 2% jump in Brent crude, which traded around $90.70 a barrel.

TotalEnergies, Orlen and OMV rose between 1.8% and 3.8%. The rise in energy prices has reinforced inflation concerns at a time when investors are already bracing for further policy tightening. A strong earnings season and continued enthusiasm around artificial intelligence are set to leave the STOXX 600 up 0.9% for August.