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European stocks fell sharply on Monday as global risk appetite deteriorated following a major escalation in the Middle East, after the United States and Israel launched widespread military strikes on Iran over the weekend.
At 03:05 ET (08:05 GMT), Germany’s DAX index plunged 2.5%, France’s CAC 40 dropped 2.1%, and the UK’s FTSE 100 fell 0.8%, as investors rushed to cut exposure to risk assets.
Middle East escalation rattles markets
The selloff came amid a broad global retreat from equities, with Asian markets closing sharply lower and U.S. stock futures pointing to a weak open on Wall Street.
Over the weekend, the U.S. and Israel carried out coordinated attacks on Iran, killing several senior officials, including Supreme Leader Ayatollah Ali Khamenei. Tehran responded with retaliatory strikes across multiple Middle Eastern countries and against U.S. military bases in the region.
The conflict showed little sign of abating. U.S. President Donald Trump said overnight that joint U.S.-Israeli military operations would continue and could last for several weeks, amplifying fears of a prolonged regional war with far-reaching economic consequences.
Record rally abruptly interrupted
The sharp downturn comes after European equities closed at record highs on Friday, capping an eight-month winning streak driven by stronger-than-expected corporate earnings and improving economic data.
The pan-European STOXX 600 had notched its longest monthly run of gains since 2012–2013, but that momentum was abruptly halted as geopolitical risk overwhelmed fundamentals.
While the quarterly earnings season is winding down, a handful of company results were still in focus on Monday—though they were largely overshadowed by the broader market shock.
Smith & Nephew (LON:SN) reported a 15.5% rise in annual profit, building on a turnaround strategy that delivered cost savings and stronger growth across its divisions.
Bunzl (LON:BNZL) posted a 9.8% decline in adjusted pretax profit, citing weaker trading conditions in North America and ongoing tariff-related supply-chain disruptions.
Galp Energia (ELI:GALP) delivered a solid operational performance in 2025, supported by strong cash generation and a healthy balance sheet despite softer oil prices.
Weak German data adds pressure
On the macro front, German retail sales fell more than expected in January, declining 0.9% month-on-month versus forecasts for a 0.2% drop—adding another headwind to Europe’s largest economy.
In contrast, UK house prices edged 0.3% higher in February and were up 1.0% year-on-year, according to Nationwide Building Society data.
Investors are now awaiting the final reading of the euro zone manufacturing PMI for February, due later in the session, which is expected to confirm that the sector returned to expansion territory last month.
For now, however, escalating geopolitical risks have firmly taken center stage, leaving European markets vulnerable to further volatility in the days ahead.
