European Stocks Surge as Falling Oil Prices Overshadow German Political Shock

TLDR

• European stocks rose around 1% on Monday as falling oil prices eased pressure on inflation and corporate margins.
• The STOXX 600 posted its strongest daily gain in more than two months.
• Germany’s DAX rose despite Chancellor Friedrich Merz’s party suffering its worst state election result since 1949.
• Technology stocks led gains, with ASML and Soitec moving sharply higher.
• Investors are also watching ECB officials for clues on whether the recent rate hike marks the start of a longer tightening cycle.

European stocks moved sharply higher on Monday as lower oil prices helped investors look past a political setback in Germany and renewed concerns over interest rates.

The STOXX 600 gained about 1%, marking its strongest daily advance in more than two months.

France’s CAC 40, Italy’s FTSE MIB and Spain’s IBEX 35 also rose around 1%.

London’s FTSE 100 gained close to 1%, although weaker energy shares limited some of the upside.

Falling Oil Prices Lift European Markets

The main support for equities came from another decline in crude oil prices.

Oil fell for a fourth straight session as investors watched for possible diplomatic progress in the Middle East.

President Donald Trump has said he would probably be open to meeting Iranian President Masoud Pezeshkian during the United Nations General Assembly this week.

Lower oil prices can reduce pressure on inflation and improve profit margins for companies that rely heavily on energy.

That helped European stocks recover after Friday’s selloff.

The STOXX 600 had fallen 0.33% last week, marking its third consecutive weekly decline.

Friday’s weakness followed concerns about European crude supplies after Saudi Aramco halted some allocations following attacks on its East-West pipeline.

German Political Shock Fails to Stop DAX Rally

Germany’s DAX rose around 1% despite a difficult weekend for Chancellor Friedrich Merz.

Merz’s conservative party recorded its weakest state election performance since 1949.

The result raised questions about the stability of the governing coalition and its ability to push through economic reforms.

Deutsche Bank analysts said the immediate market effect was not necessarily a change in national policy, but a weakening of Germany’s political center.

Technology stocks helped offset those concerns.

Soitec rose more than 7%, while ASML gained around 4% after strength in Asian technology shares.

Novo Nordisk moved in the opposite direction, falling more than 5% after the company outlined its longer-term growth strategy.

ECB Rate Path Remains in Focus

Investors are also watching comments from European Central Bank officials.

ECB President Christine Lagarde and Executive Board member Piero Cipollone are scheduled to speak later Monday.

Markets are looking for clues on whether the ECB’s recent rate increase to 2.50% was a one-off response to inflation and energy pressures or the start of a longer period of tighter policy.

Eurozone inflation remains above target, keeping pressure on policymakers.

Bond markets have already reacted to the latest rate move, and investors remain sensitive to any indication that borrowing costs could stay high for longer.

Individual stocks also showed wide moves.

Elixirr International fell sharply after reporting slower organic growth.

Ayvens declined despite raising its 2029 return-on-tangible-equity target.

For now, falling oil prices and strength in technology stocks are supporting European equities, even as investors monitor German politics and the ECB’s next steps.