European stocks gain as oil jumps on West Asia tensions

European stocks struggled higher on Monday, shrugging off dialled-down expectations for a big US rate cut this month, while escalating tensions in West Asia boosted safe-haven assets and oil prices.

MSCI's broad index of world stocks slipped 0.2 per cent, pulling further away from the near-year-and-a-half high reached earlier in June after falls in much of Asia.

Europe's regional STOXX 600 index gained 0.1 per cent, Germany's DAX and France's CAC rose 0.3 per cent and Britain's FTSE jumped 0.5 per cent.

Energy stocks booked the largest gains in Europe after crude oil prices jumped at least $1 per barrel, on concern that Iran's seizure of a British tanker last week may lead to disruptions in West Asia.

Meanwhile, investors were shunning real estate stocks that would benefit from lower interest rates and defensive sectors such as utilities and telecoms ahead of a big week for earnings.

“Sentiment about company earnings potential appears to be mixed at best, with some evidence that we might be seeing a bit of a pick-up in economic data, after a slow first-half of the year,” said Michael Hewson at CMC Markets.

“The pick-up in US economic data last week, as well as contradictory commentary from Fed officials, appears to be muddying the waters for investors about the possible reaction function of the US Federal Reserve at the end of this month and whether we can expect to see a 25 basis point or 50 basis point rate cut.”

Momentum looked better for the day ahead on Wall Street. US futures pointed to a 0.2 per cent-0.4 per cent higher open.

Global stocks rose towards the end of last week after dovish comments by New York Fed President John Williams boosted expectations the world's top central bank would lower rates by 50 basis points at its July 30-31 meeting.

They gave back those gains and Wall Street shares fell after the New York Fed walked back Williams' comments by saying his speech was not about upcoming policy action.

Hopes for a larger cut were curtailed even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month, and may trim further in the future given global growth and trade uncertainties.

The dollar inched higher and US Treasury yields held steady on the greater likelihood of a shallower rate cut. The dollar index gained to 97.169 against a basket of six major currencies after rising 0.4 per cent on Friday.

The euro was little changed at $1.1217 after shedding 0.5 per cent on Friday. The dollar edged up 0.12 per cent to 107.82 yen. The benchmark 10-year Treasury yield lingered at 2.0429 per cent.

Still, the broad decline in equity markets limited the rise in safe-haven Treasury yields.

“A factor which could guide stocks lower this week are tweets by US President Donald Trump pertaining to trade issues with China,” said Junichi Ishikawa, senior forex strategist at IG Securities. “Stocks could decline if he continues to make challenging trade comments directed at China this week.”

Trump last week renewed a threat to impose tariffs on another $325 billion of Chinese goods, even as hopes grew that the two sides would soon resume face-to-face negotiations in a bid to end their year-long trade war.

Elsewhere in currencies, the pound edged lower before the Conservative Party chooses its new leader on Tuesday. The pound was last down 0.2 per cent at $1.2486, having declined 1.6 per cent against the dollar so far this month. It was also lower against the euro at 89.890.

In commodities, Brent crude futures and US crude futures jumped more than $1 dollar to $63.86 and $56.7 per barrel following a 1 per cent jump on Friday.

Iran's Revolutionary Guards on Friday captured a British-flagged oil tanker in the Strait of Hormuz after Britain seized an Iranian vessel earlier this month, further raising tensions along a vital international route for oil shipments.

Spot gold gained to $1,426.92 an ounce after rising as high as $1,452.60 on Friday, its strongest since May 2013.

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