LONDON — European stocks started the last trading month of the year in negative territory.
The pan-European Stoxx 600 index preliminarily closed the session 0.2% lower on Monday, with major bourses and most sectors in negative territory.
Regional markets closed higher on Friday, marking the end of a choppy month for stocks as concerns over lofty artificial intelligence valuations returned to the fore.
Uncertainty over monetary policy also affected sentiment last month but investors are now expecting the U.S. Federal Reserve to trim interest rates when it meets on Dec. 9-10. Traders are pricing in an 87.4% chance of a quarter-point rate cut, according to the CME FedWatch Tool.
The U.K.'s central bank is also closely monitoring the Fed for any potential spillover effects. "About half the moves in our curve actually are generated entirely outside the U.K.," Megan Greene, who sits on the Monetary Policy Committee at the Bank of England, told CNBC's Ritika Gupta in an exclusive interview on Monday.
The BOE has not committed to cutting rates in December, on the backdrop of persistent inflation risks, wage growth sitting above target, labor market weakening and snails-pace consumption.
The U.K.'s Autumn Budget last week delivered some deflationary measures, namely in energy and rail fares, which should benefit consumers in the short-term, Greene said, though the bank "should look through that" to establish price stability in the medium term.
"Now that we've had a bit more headroom established, there might be a bit less uncertainty, and so that tends, on balance, to unlock more investment than otherwise," she added.
One of the biggest challenges for the BOE is unlocking consumer spending. "We keep expecting consumption to kick in, and it keeps not happening," Greene said. Historically, U.S. and U.K. consumers behave similarly, but U.S. consumption today is about 15% above pre-pandemic levels, while the U.K. is at 1%.
"If the outlook for consumption would end up much weaker than what we're expecting, then that might shift my views as well," she said, regarding a rate cut.
Market movers
On stocks, European defense stocks fell sharply on Monday as investors kept a close eye on progress toward a peace deal for Ukraine this week. Rheinmettal slipped 2.2%, while Renk dropped 4.7%, and Hensoldt was about 3.1% lower in afternoon trade, each paring some earlier losses.
U.S' Special Envoy Steve Witkoff travels to Moscow for talks with Russian President Vladimir Putin and other Kremlin officials. The talks come after Ukraine said it approved in principle of a U.S.-backed 19-point peace plan. The plan is an amended version of an initial 28-point plan, devised secretly by the U.S. and Moscow, which appeared to favor Russia.
Ukrainian and U.S. officials, led by U.S. Secretary of State Marco Rubio, held more talks in Florida over the weekend. Rubio said the talks were "very productive" but that there was more work left to be done.
Precious metals miner Fresnillo was among those leading European stocks on Monday, advancing 7% as gold reached a six-week high at the start of a new trading month. Other miners notched gains, with Anglo American positive at over 1.4%, and Glencore last seen 1% higher.
Gold spot prices were last seen at $4,237.89, up 0.18% on Monday, dipping from earlier highs.
Meanwhile, shares in Airbus closed 5.8% down, paring some losses from earlier in the session, after the European aircraft manufacturer moved to rapidly update flight software in its A320 fleet over the weekend. Fears of widespread travel disruption failed to materialize after Airbus said on Friday it was immediately requesting the changes following concerns that solar radiation could potentially corrupt crucial flight control data.
Asia-Pacific markets kicked off December in mixed territory as traders assessed fresh manufacturing data from China, which showed China's factory activity unexpectedly contracted in November.
Meanwhile, U.S. stocks fell as traders prepared to wrap up a strong 2025.
Seasonality is also on Wall Street's side. The S&P 500 averages an advance of more than 1% in December, making it the third-best month of the year for the benchmark in records going back to 1950, according to the Stock Trader's Almanac.
— CNBC's Fred Imbert contributed reporting to this market report.