European stocks retreat as oil soars on Middle East conflict

On Monday, European stock markets experienced a decline as investors evaluated the ramifications of the military conflict in the Middle East and the consequent rise in oil prices.

As of 03:25 ET (07:25 GMT), Germany's DAX index recorded a 1% decrease, France's CAC 40 saw a drop of 1.1%, while the U.K.'s FTSE 100 fell by 0.3%. However, the FTSE 100 received some support from its significant oil companies, aiding it to some extent.

Oil soars on Middle East conflict escalation

The Israeli-Palestinian conflict escalated to full-blown war over the weekend, as members of the Islamist group Hamas attacked several Israeli towns, killing hundreds of Israelis and abducted dozens more. In response, Israeli air strikes pounded numerous targets in Gaza, resulting in numerous casualties.

This new source of conflict, with the Ukrainian war still ongoing, has seen oil prices surge, to the detriment of most European stock markets. The higher oil prices could add to inflationary pressures, prompting more central bank tightening, and also acts as a tax on consumers.

The benchmark Brent and Nymex contracts gained as much as 5%, before slipping slightly back, just when prices had been on the retreat.

Last week saw oil prices post their steepest weekly losses since March, as Brent posted a decline of about 11% and WTI recorded an over 8% drop, on worries that persistently high interest rates will slow global growth and hammer fuel demand.

At 03:25 ET, the U.S. crude futures traded 3.3% higher at $85.51 a barrel, while the Brent contract climbed 2.9% to $87.00 a barrel.

German industrial production weakened in August

According to the latest data published on Monday, there was a decrease of 0.2% in German industrial production in August compared to the previous month. This figure indicates a better performance compared to the revised 0.6% decline recorded in the previous month.

However, it is important to note that Germany, being the dominant economy in the eurozone, has significant dependence on energy expenses. Consequently, if oil prices continue to rise consistently, it would adversely affect the country's economy.

Additionally, this is the fourth consecutive month this sector has retreated, stoking recession fears.

ECB Vice President Luis de Guindos and Bank of Spain Governor Pablo Hernández de Cos along with ECB board member Andrea Enria are set to speak during the session.

Vodafone (NASDAQ:VOD)'s Spanish unit in play - Expansion

In corporate news, Vodafone (LON:VOD) stock rose 0.2% after the Spanish Expansion newspaper reported that U.S.-based buyout fund Apollo Global Management (NYSE:APO) is readying a bid with local fund JB Capital for the Spanish unit of the U.K. telecom giant.

The news about a potential bid comes three weeks after British telecom investment company Zegona said it was in talks with Vodafone to buy the Spanish unit.

Elsewhere, the third quarter earnings season gets underway this week, with particular focus on reports from several Wall Street banking giants, including JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) on Friday.

The outcome of the earnings season may greatly influence the short-term trajectory of stocks, keeping in mind that the S&P 500 maintains a 10% gain for the year, despite its recent decline.

Furthermore, there has been a 1% increase in gold futures, reaching a value of $1,863.65 per ounce. On the other hand, the EUR/USD pair experienced a 0.5% decrease in trading, settling at 1.0537.