Europe close: Stocks rise as oil prices fall back

(Sharecast News) - European shares moved higher on Monday as oil prices pared earlier gains after reports that crude loading operations had resumed at the United Arab Emirates' port of Fujairah following a drone attack that had briefly disrupted exports.

The pan-European Stoxx 600 rose 0.44% to 598.47.

Germany's DAX advanced 0.5% to 23,564.01, France's CAC 40 gained 0.31% to 7,935.97, and London's FTSE 100 added 0.55% to 10,317.69.

"Earlier today it looked like we were poised for a fresh outbreak of risk aversion as Brent pushed through the magic $100 level," noted Chris Beauchamp, chief market analyst at IG.

"Stock markets stand or fall by the oil price at present, and in the topsy-turvy world created by the war against Iran, the absence of bad news, and hopes that the war will last weeks rather than months, is enough to prompt a recovery in equities."

Energy markets remained central to investor sentiment amid ongoing tensions linked to the conflict involving Iran.

Brent crude futures were last down 1.2% on ICE at $101.90 a barrel, while the NYMEX quote for West Texas Intermediate dropped 3.46% to $95.29, after exports from Fujairah were reported to have resumed following a fire in the emirate's petroleum industrial zone caused by the drone attack.

Beauchamp noted that "just as equity traders find themselves trading and watching oil, commodities traders are now transfixed by the movements of individual ships through Hormuz," adding that "a second week where oil fails to hold above $100 might start to suggest that investors are still happy to sell the rallies in Brent and WTI on the basis that the US will take steps to prevent Iran closing the strait on a permanent basis."

Geopolitical risks still continued to dominate the outlook for global energy markets.

US president Donald Trump over the weekend called on Western allies to help protect shipments stranded near the Strait of Hormuz amid threats from Iran's Revolutionary Guard.

The appeal came after the United States struck Iran's Kharg Island oil facilities, with Trump claiming the attacks had "totally demolished" much of the processing infrastructure and warning that the military might hit the site "a few more times just for fun."

He also cautioned that it would be "very bad for the future of Nato" if allies declined to participate in a proposed maritime coalition.

Iran's foreign minister Abbas Araghchi rejected claims that the Strait of Hormuz was closed, saying the passage remained open to all nations except the United States, Israel and their allies.

Investors were also preparing for a busy week of monetary policy decisions from major central banks.

Policymakers in the UK, the United States, Japan and the eurozone were widely expected to leave interest rates unchanged, while Australia was expected to stand out with a rate increase as the Reserve Bank responded to strong consumer spending and inflation well above target.

Danni Hewson, head of financial analysis at AJ Bell, said investors would now be focused on how policymakers respond to the renewed energy shock.

"What investors will be keen to discover is how central banks are factoring in the anticipated rekindling of inflation and whether they see a swift resolution setting rates back on the path downwards, or if the impact of the past couple of weeks takes cuts off the table for the rest of the year."

Goldman cuts global growth forecast amid Iran war

Economic data highlighted the broader impact of the energy shock.

Goldman Sachs cut its global growth forecast and raised inflation expectations due to the Middle East conflict, estimating that higher oil prices could trim global GDP growth by 0.3 percentage points to 2.6% and lift headline inflation by between 0.5 and 0.6 percentage points over the next year, with a smaller 0.1 to 0.2 point increase in core inflation.

The bank now assumed 21 days of reduced flows through the Strait of Hormuz, up from 10 days previously, which would see Brent crude average $98 per barrel in March and April before easing to $71 by year-end.

In a more extreme scenario, Goldman said prices could surge to $150 and remain elevated.

The bank also lifted the probability of a US recession to 25% from 20%, warning that recession risks in Europe could be significantly higher under prolonged disruption.

In the United States, industrial production rose 0.2% in February following a 0.7% increase in January, according to Federal Reserve data, slightly ahead of expectations for a 0.1% rise.

Manufacturing output increased 0.2% and mining activity climbed 0.8%, partly offset by a 0.6% fall in utilities output.

Overall industrial production was 1.4% higher than a year earlier, while capacity utilisation held steady at 76.3%, above the 76.2% forecast but still 3.1 percentage points below its long-run average.

In the UK, manufacturers reported a fragile start to 2026 despite modest improvements in activity.

According to Make UK's latest Manufacturing Outlook, the net balance for output rose to +21% from +13% in the previous quarter, while total orders also climbed to +21% and were expected to reach +37% in the second quarter.

Export orders fell to +18% and domestic orders to +9%, however, reflecting weaker demand at home.

The sector was expected to grow 0.9% in 2026 following a 0.2% contraction last year, though rising energy costs and labour expenses are weighing on confidence.

Recruitment growth slowed to a net balance of +8% and confidence declined for a third consecutive quarter.

"UK manufacturers have started 2026 on a fragile footing," said Make UK senior economist Fhaheen Khan.

"While output and investment show some improvement after a challenging end to last year, rising costs and weakening domestic demand are creating real pressures for businesses."

Defence stocks in the green, Amplifon tumbles

In equities, defence companies were among the strongest performers amid the escalating geopolitical tensions, with Renk rising 3.68%, Hensoldt gaining 5.38%, and Rheinmetall advancing 2.01%.

Oil majors also edged higher, with BP up 0.19% and Shell adding 0.39% as crude prices remained well above recent averages despite Monday's declines.

Banking shares were boosted by deal activity after UniCredit said it was launching an offer to raise its stake in Commerzbank to more than 30%.

Commerzbank surged 8.62%, while UniCredit reversed earlier losses to end 0.54% higher.

On the downside, Amplifon tumbled 14.28% after the Italian hearing aid group announced plans to acquire the hearing business of Denmark's GN Store Nord for �2.3bn.

Reporting by Josh White for Sharecast.com.