European shares dropped Monday, as rising oil prices fuelled inflation fears and bolstered expectations that the European Central Bank will hike interest rates later this week.
The pan-European STOXX 600 was down 0.1% at 649.17 points and Switzerland’s benchmark index was down 1.2%. Energy stocks rose 1.2% as Brent crude prices jumped on renewed geopolitical fears and worries about prolonged supply disruptions.
Higher oil prices have raised concerns that increasing energy costs could push inflation even further above the ECB’s target. Markets have now priced in a 25 basis point hike at the central bank meeting on Thursday.
Investors will be looking for any sign that policymakers will raise rates further amid still-high energy prices, as the ECB is expected to raise its policy rate to 2.5%. Deutsche Bank on Monday said it now expects another 25 basis-point increase in December due to persistent inflation pressures related to energy.
Investors are also waiting for eurozone economic data and US inflation figures later this week that could influence expectations for central bank policy.
Trading was expected to remain relatively light because US markets are closed for the Labour Day holiday.
