Oil Price Drop Lifts European Stocks from Two-Month Lows

European stocks rebounded on Monday, ending a three-week losing streak as falling oil prices eased inflation worries. The pan-European STOXX 600 index rose roughly 1%, with France's CAC 40 and Italy's FTSE MIB each advancing close to 1%. Spain's IBEX 35 also posted a similar gain.

The rebound was triggered by crude futures easing for the fourth straight session, down 1.7% globally due to signs of successful physical supply rerouting around Middle East maritime bottlenecks and diplomatic signals from Washington. Oil prices carry significant weight in European corporate margins, particularly in manufacturing and transportation sectors.

German stocks also recovered after Chancellor Friedrich Merz's conservative party suffered its worst state election result since 1949. However, analysts saw the market impact as structural rather than policy-driven, with a further weakening of Germany's political center.

Tech names such as ASML and Soitec helped counterbalance the political noise, while investors await clearer direction from Frankfurt on ECB policy path after recent rate increase to 2.50%.