By Twesha Dikshit
May 18 (Reuters) - European shares slipped on Monday, as inflation worries lingered with no sign of a deal between the U.S. and Iran to end their three-month-old war.
Global bond rout from last week deepened with inflation figures from the U.S., Germany, China and Japan spooking investors and weighing on the world's stock markets. [MKTS/GLOB]
Over the weekend, a drone strike caused a fire at a nuclear power plant in the UAE, Saudi Arabia reported intercepting three drones, and U.S.
President Donald Trump warned that Iran must act "fast".
It cemented fears that the war is unlikely to end soon as the Strait of Hormuz, a conduit for 20% of the world's energy supply, remains shuttered. Oil prices rose on Monday. [O/R]
The pan-European STOXX 600 was down 0.5% at 604.09 points, as of 0822 GMT, after ending the previous week lower. Most regional bourses were also in the red with Spain's IBEX 35 and France's CAC 40 off 0.5% and 0.9%, respectively.
"Short term, we remain neutral on European equities. They are still at risk compared to the U.S. due to earning strength and energy impact," said Michele Morganti, equity strategist and head of insurance at Generali Investments.
"These two engines, Iran and AI CapEx, are pushing inflation up, and 10-year rates are skyrocketing. That's representing another negative for risk."
German Central Bank head Joachim Nagel said that central bankers could do "a lot more" to help financial markets and give them a positive momentum ahead of a Group of Seven finance ministers and central bankers meeting in Paris on Monday.
Money markets currently expect more than two rate hikes from the European Central Bank by the end of the year, with the first one likely in June.
Travel shares dropped 1.6% with airlines Ryanair, Lufthansa and Easyjet down between 2% and 3.1%.
Ryanair warned that consumer anxiety amid the war was likely to wipe out any growth in the peak summer months.
Banks and industrials weighed on the broader index, off 0.8% and 0.6%, respectively.
Luxury shares were under pressure. LVMH, Dior and Gucci owner Kering lost about 2% each.
Among individual stocks, Publicis added 2.7% after the advertising group agreed to acquire U.S. data collaboration company LiveRamp for an all-cash deal of about $2.2 billion. The media index gained 0.8%.
Sonova rose 2.5% after the world's biggest hearing aid maker forecast higher sales and earnings for the 2026/27 financial year.
(Reporting by Twesha Dikshit; Editing by Harikrishnan Nair)
