European Stocks, Oil Soars Drop on Middle East Conflict

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(Bloomberg) — European stocks flipped to gains from losses as the conflict in the Middle East boosted oil stocks. 

The Stoxx Europe 600 Index was 0.2% higher as of 10:27 a.m. in London. Energy stocks jumped as West Texas Intermediate traded near $85 a barrel on concerns about supply. Travel and leisure shares lagged as global airlines stopped flights to Israel, while rising oil prices also hit airlines. Defense shares also jumped.

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The energy-heavy FTSE 100 Index outperformed regional peers, climbing 0.5%. Germany’s DAX Index fell 0.2% as German industrial output fell for a fourth month in August. Among single stocks, Schaeffler AG fell as much as 7.2% on news it is seeking to buy out Vitesco Technologies Group AG. Metro Bank Holdings Plc soared 22% after the British retail and commercial bank clinched a £925 million ($1.1 billion) financing package.

Saturday’s assault on Israel has sparked fresh concerns about geopolitical risks just when global financial markets were already grappling with the impact of high rates and a slowdown in China’s economy. Liberum strategist Joachim Klement recommends holding energy stocks as a hedge in case of a possible escalation of the conflict, while also buying battered consumer stocks.

If the conflict is contained, “oil price spikes should recede as no oil supply is disrupted and equity markets should recover from current oversold levels” he said.

As central bankers flock to Marrakech for IMF-World Bank meetings, European Central Bank’s head Christine Lagarde said the IMF has cut its forecast for global growth, though not for the US. She told La Tribune Dimanche about the downgrade ahead of the publication of the fund’s latest outlook.

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Europe’s main regional benchmark notched its third weekly decline last week as a bond rout and worries about higher-for-longer interest rates hit markets. The Stoxx 600 is now up less than 5% this year. 

Later this week, all eyes will be on US CPI data, which is seen rising at a monthly pace that corroborates the message from central bankers that interest rates will need to stay higher.

SECTORS TO WATCH

  • European oil stocks could be active as crude surged as much as 5% after the broadest and bloodiest attack on Israel in decades threatened to inflame tensions in the Middle East, the source of around a third of global supply.

For more on equity markets:

  • Turmoil in Markets Sets Up a Flight to Quality: Taking Stock
  • M&A Watch Europe: Vitesco, Euronav, Metro Bank, Paschi, Juventus
  • US Stock Futures Fall
  • Green Investors Stay Cautious, Impax Says: The London Rush

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