Europe close: Stocks finish flat on quiet day, DAX hit by political uncertainty

(Sharecast News) - European stocks finished in mixed fashion on Monday, with indices across the continent range-bound in the absence of US trading, though shares in Frankfurt were dampened by political uncertainty.

The pan-European Stoxx 600 benchmark finished the session just 0.02 points up (0.00%) at 649.90, with gains on the CAC 40 and FTSE MIB offset by small losses on the FTSE 100, SMI, IBEX 35 and DAX 40.

A national holiday Stateside meant Wall Street was effectively shut, which likely prompted a reduction in risk appetite on this side of the Pond.

"It's Labor Day in the US which means no trade in individual equities although stock index futures have a truncated session. FX is open but volumes are likely to be down significantly, which means thin trading conditions," said David Morrison, senior market analyst at Trade Nation.

Weighing on upside was another 1.7% rise in the price of Brent crude to $97.94 a barrel as Tehran and Washington continued to escalate their conflict, with the US firing at three Iranian oil tankers, and prompting a retaliatory attack on two US Navy warships.

Meanwhile, the crucial Saxony-Anhalt election in Germany was making headlines after the far-right AfD party's historic win over the weekend. The anti-immigration party, which has called for the mass "remigration" of migrants, won 43.8% of the vote, just a handful of votes short of an absolute majority, compared with the conservative CDU's 17.2%.

Chancellor Friedrich Merz said it wasn't possible for the government to revert to "business as usual" and labelled the defeat as "seismic".

Data from Germany on Monday also revealed that industrial production fell unexpectedly in July, dragged lower by a sharp drop in automotive output. According to figures from the Federal Statistics Office, total output declined 1.1% on the month, confounding expectations for a 0.1% rise and marking a setback after a period of modest stabilisation across the sector.

In other economic data, Eurostat revised its final estimate of eurozone GDP growth to 0.6% for the second quarter, 0.2 percentage points ahead of the 0.4% rate initially reported in the previous two releases. This compared with no growth in the first quarter and marked the strongest quarterly expansion since the second quarter of 2022.

"With US stock indices closed for Labor Day all eyes were on Germany's historic AfD Saxony-Anhalt victory, rising Bund yields and an unexpected fall in the country's industrial output, all of which weighed on the DAX 40," said Axel Rudolph, chief technical analyst at IG.

"Although cautious, the country's neighbours like France and Italy added to their recent stock market gains as eurozone growth saw an upward revision in Q2."

In equity news, tech stocks were performing well, following a rally from the AI and chip sectors in the US on Friday and Asia overnight. Infineon Technologies, ASM International, STMicroelectronics and BE Semiconductor Industries were among the top performance on the Stoxx 600.

In London, Admiral was in the black as Morgan Stanley upgraded the insurer to 'overweight' from 'underweight' as it said recent share price weakness provides a more attractive entry point, while the valuation leaves room for further re-rating given the improving backdrop.