BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - European stocks may drift lower at open on Monday, with trading volumes likely to remain thin amid the Labor Day holiday in the United States.
Inflation and interest-rate worries returned to the fore as a robust U.S. jobs report raised the probability that the Federal Reserve will increase its key interest rate at its upcoming policy meeting later this month.
Market attention is currently focused on critical U.S. inflation data due this week, which could heavily influence the Fed's rate trajectory and investors' appetite for risk.
U.S. producer price inflation data is due on Thursday while the consumer price inflation report is scheduled for Friday.
Closer home, an ECB rate hike on September 10 looks all but certain as the Iran war raises energy costs in the region.
European bonds, including German bunds, will be closely watched today after the far-right party Alternative for Germany (AfD) achieved a significant victory in a regional election but failed to secure absolute majority to govern alone.
On the geopolitical front, fresh U.S.-Iran hostilities intensified concerns over global energy supplies.
Bent crude futures rose toward $98 a barrel, extending last week's gains on concerns over prolonged supply disruptions after U.S.-Iran attacks pushed Hormuz traffic to its lowest since May.
The U.S. military targeted three Iranian oil tankers over the weekend after ballistic missiles were launched towards two of its warships patrolling regional waters.
In retaliation, Iran said that its forces attacked a U.S. naval drone trying to enter the Strait of Hormuz.
Hours earlier, Iran's Revolutionary Guard Corps warned ships not to attempt to transit on approved routes after targeting 'three oil tankers on the unauthorized route of the Strait of Hormuz and three vessels affiliated with the child-killing America in other areas.'
Iran's top security official has announced that a new restricted zone would be established outside the Strait of Hormuz in the coming days, adding to uncertainty around the future of energy shipments through the strategic waterway.
According to the Press TV, the proposed area would begin at the U.S. Navy blockade line and extend into parts of the Persian Gulf.
U.S. Secretary of Energy Chris Wright cautioned that the Trump administration may never reach a deal intended to prevent Iran from obtaining a nuclear weapon and that Iran's capabilities could instead be destroyed.
Asian markets were mixed, with tech-heavy Kospi and Nikkei rising over 4 percent and 2 percent, respectively.
To counter growth pressures and strengthen the financial sector, China rolled out a package of capital injections worth about 360 billion yuan (US$54 billion) on Sunday for the country's biggest banks and insurers.
The U.S. dollar remained pressured by fiscal concerns in Asian trade while gold was subdued at 4,408 an ounce after a tumultuous week.
U.S. stocks fell on Friday while the dollar and Treasury yields rose as the release of much stronger-than-expected jobs data boosted the odds of a September rate hike by the Federal Reserve.
Data showed nonfarm payrolls rose by 162,000 jobs last month after an upwardly revised 21,000 jobs in July.
Economists had forecast an increase of 55,000 jobs compared to the loss of 23,000 jobs originally reported for the previous month. The unemployment rate held steady at 4.1 percent.
The Dow dropped half a percent, the tech-heavy Nasdaq Composite slid 0.3 percent and the S&P 500 eased 0.4 percent.
European stocks ended little changed on Friday but logged weekly losses on inflation and interest-rate concerns fueled by escalating conflict in the Middle East.
The pan-European STOXX 600 edged up 0.1 percent. The German DAX rose 0.2 percent, while France's CAC 40 and the U.K.'s FTSE 100 both finished marginally lower.
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