European stocks edge down as Middle East conflict escalates

The STOXX 50 dropped 0.6% while the broader STOXX 600 slipped 0.4% on Monday, reflecting a modest risk-off shift among European investors as geopolitical tensions in the Middle East intensified.

Sentiment was dented after the United States became directly involved in the Israel-Iran conflict, launching airstrikes on Iranian military and nuclear-related facilities. Although fears of a wider regional escalation loomed large, the market's reaction remained relatively contained, with many traders opting for a wait-and-see approach amid hopes that diplomatic channels might prevent further escalation.

A key concern for investors remains the potential disruption to global energy markets, particularly the risk of Iran retaliating by targeting the Strait of Hormuz—a critical chokepoint through which roughly a fifth of the world’s oil supply passes. Any disruption there could trigger a sharp rise in oil prices, potentially fueling inflation and complicating central banks’ monetary policy paths. As such, while European equities fell, safe-haven assets such as gold and government bonds saw modest inflows.

Economic data added a layer of complexity to market sentiment. Flash Purchasing Managers’ Index (PMI) readings for June offered a mixed view of the Euro Area economy. Germany, the region’s largest economy, returned to growth for the first time in six months, driven by a manufacturing revival.

However, France’s private sector continued to contract, weighed down by weaker services activity and subdued demand. The divergence underscores the uneven pace of recovery across the bloc and adds uncertainty ahead of the European Central Bank's next policy decisions.

On the corporate front, individual stocks saw mixed performance. Novo Nordisk fell more than 2%, even after releasing generally positive late-stage trial results for its new weight-loss drug, CagriSema. Analysts noted that expectations for the drug were already high, and some investor disappointment may have stemmed from concerns about market competition or pricing. In contrast, ASML Holding gained over 1%, attempting to rebound from last week’s sharp losses, driven by renewed investor interest in semiconductor stocks amid persistent demand for advanced chipmaking technologies.

Overall, Monday’s session reflected a delicate balance between geopolitical anxiety, economic uncertainty, and selective sector rotation, with investors maintaining a cautious stance as they monitor both global conflict developments and upcoming macroeconomic data releases.