European stocks rebound as oil price retreat offers relief
European equities staged a recovery on Monday after a turbulent trading week, with investors finding encouragement in a pullback in crude prices that helped stabilise government bond markets. The rally, however,lost momentum in the final hour of trading.
Milan's FTSE MIB closed up 0.42%, while Frankfurt's DAX posted the strongest performance among major indices with a gain of 0.6%. London's FTSE 100 barely moved, finishing just 0.04% higher, and Paris's CAC 40 erased its gains entirely by the close. The slower finish in Europe came despite a positive opening on Wall Street.
Oil price moves into focus
Brent crude continued its descent, falling 1.2% to €105.2 per barrel. The decline has given equity markets a reprieve by easing concerns about inflation pressures in the Eurozone.
Lower oil prices feed through to the economy in three ways. They reduce costs for manufacturers and transport firms, improving profit margins for companies that depend heavily on energy. They also leave households with more disposable income when fuel prices fall at the pump, supporting consumer spending. For bond markets, diminished inflation expectations have helped halt the sell-off in government debt that had shaken financial markets.
Geopolitical tensions persist
Despite Monday's price drop, analysts expect volatility to remain elevated. The main driver is the diplomatic standoff between the United States and Iran over the Strait of Hormuz, which has been formally closed to commercial traffic for months. The waterway is a critical transit route for crude shipments.
Goldman Sachs has revised its Brent forecasts upward, suggesting prices could exceed $120 per barrel through 2026–2027. The price of Brent has already risen 59.44% compared with the same period last year.
What investors are watching
The European Central Bank has moved into focus. Investors are awaiting remarks from ECB President Christine Lagarde to the European Parliament for signals on how the institution views rising energy costs and their implications for monetary policy.
Market pricing now assigns a 45% probability to an interest rate increase from the ECB in October, up from 25% before its 10 September meeting. Forecasts point to Eurozone headline inflation rising to 3.6% in September—from 3.2% in August—driven largely by fuel costs.
For Italy's financial sector, speculation about potential consolidation continues to influence bank stocks. The FTSE MIB found technical support around the 51,000-point level last week. The index has gained 15.4% since the start of the year, though September closed with a monthly loss of 1.4%.
The key question for markets remains whether the dip in oil prices will hold, or whether supply fears will once again push crude higher and force central banks to take a more aggressive stance on interest rates.
