European Markets Slide Amid Hormuz Crisis and Rate Hike Expectations

European markets began the trading week on Monday in negative territory due to escalating military tensions between the US and Iran, which disrupted energy markets. The Strait of Hormuz crisis sent Brent crude oil prices above $90 per barrel after US military strikes disabled three Iranian oil tankers.

The Pentagon characterized the operations as a response to an Islamic Revolutionary Guard Corps ballistic missile assault on two US Navy vessels in the area. Tehran announced plans to establish a restricted military zone near the Strait of Hormuz, which heightens concerns about supply disruptions and elevated energy expenses contributing to broader inflationary pressures.

Market participants anticipate a 25 basis point rate increase from the ECB on Thursday, with Deutsche Bank analysts projecting an additional quarter-point hike in December. Higher interest rate expectations have maintained German 10-year bond yields near multi-year peaks, creating headwinds for interest rate-sensitive industries such as real estate and construction.

Novartis shares declined more than 3% following disappointing results from a high-profile clinical trial of its cholesterol medication. Italy's Lottomatica defied the broader trend, climbing 6.8% after releasing details about its planned merger with Spanish counterpart Cirsa, which would expand its digital operations.