(Bloomberg) -- Shares in European oil and defence companies soared on Monday, bucking the weakness across the rest of the equity market, as Hamas’s surprise attack on Israel threatened to inflame tensions in the Middle East.

The Stoxx Europe 600 Index closed 0.3% lower in London while the energy-heavy FTSE 100 Index outperformed. Energy supply concerns pushed West Texas Intermediate crude futures toward $85 a barrel, lifting the Stoxx energy subindex about 3% higher. Defense shares advanced, with Saab gaining as much as 9% and Rheinmetall up 7%.

Airline shares fell, however, on worries higher oil prices could erode profits, while consumer staples gained. 

Read: Israel Latest: Army Reserves Called Up, Chevron Shuts Gas Field

Germany’s DAX Index slipped 0.8% after data showing German industrial output fell for a fourth month in August. Among single stocks, Schaeffler AG fell on news it is seeking to buy out Vitesco Technologies Group AG. Metro Bank Holdings Plc soared 22% after the British retail and commercial bank clinched a financing package.

Saturday’s assault on Israel has sparked fresh concerns about geopolitical risks just when global financial markets were already grappling with the impact of high rates and a slowdown in China’s economy. Liberum strategist Joachim Klement recommended holding energy stocks as a hedge in case of a possible escalation of the conflict, while also buying consumer stocks.

If the conflict is contained, “oil price spikes should recede as no oil supply is disrupted and equity markets should recover from current oversold levels,” he said.

Read: Profit Warnings Loom as Rates Pinch Consumer Stocks: MLIV Pulse

The Stoxx benchmark is now up less than 5% this year, having notched its third weekly decline last week amid a bond rout and worries about higher-for-longer interest rates, 

All eyes will be on US CPI data later this week. Prices are expected to rise at a monthly pace that corroborates the message from central bankers that interest rates will need to stay higher.

As central bankers flock to Marrakech for IMF-World Bank meetings, European Central Bank president Christine Lagarde said the IMF has cut its forecast for global growth, though not for the US. She told La Tribune Dimanche about the downgrade ahead of the publication of the fund’s latest outlook.

For more on equity markets:

  • Turmoil in Markets Sets Up a Flight to Quality: Taking Stock
  • M&A Watch Europe: Vitesco, Euronav, Metro Bank, Paschi, Juventus
  • US Stock Futures Fall
  • Green Investors Stay Cautious, Impax Says: The London Rush

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