European stocks set to slump as Gulf tanker attacks threaten ceasefire

LONDON — European stocks are expected to fall at the start of the new trading week on fears that a re-escalation of U.S.-Iran tensions over the weekend could derail the fragile ceasefire between the two countries.

The U.K.’s FTSE 100 index is seen opening 0.34% lower, with Germany’s DAX down 1.1%, and France’s CAC 40 and Italy’s FTSE MIB both 1% lower, according to data from IG.

President Donald Trump said Sunday that a U.S Navy guided missile destroyer had fired on and disabled an Iranian-flagged cargo ship in the Gulf of Oman before Marines boarded and seized the vessel.

The seizure is an escalation of the U.S.’ blockade of the strait and comes after Iran fired upon commercial vessels attempting to transit the maritime passage earlier Sunday.

Since last week, the U.S. has been operating a naval blockade of ships entering and exiting Iranian ports. Iran views the ongoing blockade as a breach of the ongoing ceasefire, which it cites this as one of its reasons for calling off the expected negotiations on Monday in Islamabad.

Trump warned on Sunday he would “knock out every single Power Plant, and every single Bridge, in Iran” if Tehran did not agree to Washington’s terms to end the conflict. The fragile ceasefire between the two countries will expire this week.

Asia-Pacific markets were trading mostly higher overnight but U.S. futures fell early Monday. The declines come after a winning week for Wall Street, with the S&P 500 and Nasdaq Composite climbing to all-time highs last week following a ceasefire between Iran and Lebanon.

Iran had declared that the Strait of Hormuz was reopened, but by Saturday, vessel traffic through that key shipping lane was restricted again, with state media saying the U.S. “did not fulfill their obligations.”

There are no major earnings or data releases in Europe on Monday.

— CNBC’s Justina Lee and Fred Imbert contributed to this market report.