European Stocks Drift Lower as Iran Unrest and Powell Probe Weigh on Sentiment

European equities opened the new week on a cautious footing on Monday, with investors keeping a close watch on escalating unrest in Iran and fresh political pressure on Federal Reserve Chair Jerome Powell.

By 03:05 ET (08:05 GMT), Germany’s DAX was trading largely flat, France’s CAC 40 slipped 0.2%, and the U.K.’s FTSE 100 fell 0.2%, reflecting a subdued risk appetite across the region.

Growing Civil Unrest in Iran

Attention across European markets is centered on Iran, where widespread anti-government protests have intensified. Rights groups report that more than 500 people have been killed following a violent crackdown by authorities.

U.S. President Donald Trump said on Sunday that he is weighing a range of strong responses, including potential military options, warning Iran’s leadership that the United States would strike if security forces continue to open fire on demonstrators. Trump added that Tehran had reached out to negotiate its nuclear program, which was bombed by Israel and the U.S. in June, and noted that Washington may meet with Iranian officials.

The prospect of a broader regional escalation has injected fresh uncertainty into global markets, particularly given Iran’s importance in energy supply chains.

Powell Under Investigation

Risk sentiment was also dented by news that the U.S. Department of Justice has opened a criminal investigation into Federal Reserve Chair Jerome Powell over congressional testimony he gave last summer regarding a Fed building renovation project.

The move raises questions about the long-term independence of the Federal Reserve. At the same time, it could increase the likelihood of lower interest rates later this year, especially once a new Fed chief takes office after Powell’s term ends in May. Markets are weighing the political implications alongside potential shifts in monetary policy.

Capgemini in Focus

With little in the way of major earnings or economic data releases due in Europe on Monday, individual stocks are drawing attention. Capgemini is set to be in focus after Morgan Stanley downgraded the French IT services group to “underweight” from “equal-weight.”

The brokerage cited capped valuation upside and limited visibility into a sustained acceleration in growth, arguing that near-term catalysts for a meaningful rerating remain scarce.

Overall, European markets began the week in a defensive posture, caught between rising geopolitical risks and growing uncertainty over the future direction of U.S. monetary policy.