Oil Price Relief Boosts Euro Stocks Despite German Political Turmoil

European stocks surged by over 1% on Monday as oil prices pulled back from their recent highs, providing much-needed relief to margin expectations.

The STOXX 600 index saw its biggest daily gain in over two months, with France's CAC 40 and Italy's FTSE MIB rising 1% each. Spain's IBEX 35 also gained 1%, while London's FTSE 100 rose 0.8%, despite energy firms holding back gains.

However, the market rally was tempered by a sharp political shock in Germany, where Chancellor Friedrich Merz's governing coalition suffered its worst state election performance since 1949 over the weekend. The CDU party fell to a historic low, raising immediate doubts about the stability of Merz's coalition and his ability to push through vital economic reforms.

The European Central Bank (ECB) is also in focus today, with ECB President Christine Lagarde and Executive Board member Piero Cipollone scheduled to speak publicly later in the day. Market participants are searching for any forward guidance on the ECB's rate trajectory, particularly after the central bank raised borrowing costs to 2.50% two weeks ago.