The pan-European STOXX 600 was down 0.1% at 655.54 points by 0712 GMT, with trading volumes likely to remain subdued as London markets were closed for a bank holiday.
Germany’s DAX dropped 0.7%, the largest decline among regional indexes, ahead of inflation data from the euro zone’s largest economy that could offer clues on the European Central Bank’s rate path.
Euro zone inflation figures and US payrolls data will also be in focus later this week.
Investors have largely locked in expectations of a September ECB rate increase.
“With European inflation dynamics coming through this week, that probability may be massaged around the edges,” Chris Weston, head of research at Pepperstone Group, said in a note.
“We turn the page on month-end and head into a data-dependent, central bank-focused September.
With multiple central banks potentially tightening policy ... Treasury yields testing important levels and geopolitical risk remaining elevated, there is plenty for traders to navigate.”
Meanwhile, Germany’s policy-sensitive two-year government bond yield reached its highest level since July 2024, following US Treasuries after Federal Reserve Chair Kevin Warsh on Friday signalled that interest rates may need to rise.
Rising inflation risks
Energy stocks advanced as Brent crude surged more than 2%, trading around $90.70 a barrel.
TotalEnergies, Orlen and OMV rose between 1.8% and 3.8%.
The increase in oil prices followed renewed US military aggression against Iran.
US forces struck two targets on Iran’s Larak Island in the Strait of Hormuz on Sunday, the first known US military strike against in weeks, prompting Tehran to launch attacks on two US air bases in Jordan, Iranian media reported.
The escalation triggered by the US military aggression has reinforced concerns over rising energy prices and inflation at a time when investors are already bracing for further policy tightening.
Despite these concerns, a strong earnings season and continued enthusiasm around artificial intelligence are expected to leave the STOXX 600 up 0.9% for August.
In a broader development, finance leaders from the G20 gather in North Carolina on Monday and Tuesday as elevated energy and commodity prices linked to the war against Iran weigh on global growth prospects.
Among individual movers, OHB gained 7.3% after the German satellite maker signed a contract worth nearly €1 billion ($1.2 billion) to develop and build 18 satellites for the European Union’s IRIS² secure communications programme.
Separately, Bakkafrost dropped 7.4% and was among the top decliners on the STOXX 600 after the Faroe Islands salmon farmer reported its second-quarter results.