Oil Surge Weighs on European Stocks Ahead of Fed Rate Hike Decision

European stocks started the week on a down note, weighed by the ongoing surge in oil prices and concerns over inflation pressures. The Eurostoxx index fell by 0.6%, with Germany's DAX declining 0.3% and France's CAC 40 dropping 0.4%. In contrast, the UK's FTSE was up 0.3%, while Spain's IBEX and Italy's FTSE MIB slid 0.3% and 0.5%, respectively.

The main driver of market sentiment remains the rising oil prices, with Brent crude trading above $107 and WTI crude at over $102. The recent attacks on Saudi energy infrastructure and threats to shipping routes in the Middle East have reinforced concerns that the energy shock will persist, keeping inflation pressures elevated.

Market participants are also bracing for the Federal Reserve's upcoming decision, with a roughly 87% probability of a rate hike priced in following hotter US inflation data and the latest jump in energy prices. The US 10-year Treasury yields have hovered close to 5%, creating another valuation headwind for equities.