European shares start pivotal week lower, Russia-US summit in focus

European shares ticked lower on Monday, as investors refrained from making big bets ahead of an eventful week packed with tariff negotiations and ending with talks between the U.S. and Russia on the war in Ukraine.

The pan-European STOXX 600 index closed 0.1% lower, retreating from gains earlier in the day, but still hovering near its highest level since July 31.

Investors will be bracing for the summit on Friday in Alaska, where Kyiv fears Russian President Vladimir Putin and U.S. President Donald Trump may try to dictate terms for ending the 3-1/2-year war.

A German government spokesperson said, however, that European leaders will hold a virtual meeting with Trump ahead of the summit, after they backed Ukrainian President Volodymyr Zelenskiy to take part in the talks.

Hopes of a peace deal weighed on German defence companies, with Rheinmetall  dropping 4.6%, while Renk  fell 1.6%.

Germany's benchmark index  slipped 0.4%, while the broader aerospace and defence index  was off 1.1%, after hitting an over one-month low in the session.

"The provision of defence equipment has largely shifted over the last few months, Europe is now providing a lot more of the defence to Ukraine," said Craig Cameron, portfolio manager and research analyst at Templeton Global Equity Group, on the impact of a potential peace deal on European defence firms.

A 29.6% plunge in Danish wind farm developer after it unveiled a 60-billion-crown ($9.4 billion) rights issue also weighed on stocks.

The stock hit a record low and was the biggest decliner on the STOXX 600.

Meanwhile, the August 12 deadline for a deal between the U.S. and China looms, with markets expecting a deadline extension and a deal that would avoid imposing triple-digit tariffs on each other's goods.

Despite concerns about Trump's tariffs, a strong U.S. earnings season driven by AI optimism, and expectations of interest rate cuts from the U.S. Federal Reserve have pushed U.S. stocks to record highs, dimming the appeal of European equities that were outperforming U.S. peers in the first half of the year.

"The story (has) shifted back to, in particular, the U.S. as tariff deals were negotiated lower and companies like Nvidia and Microsoft have really driven the market higher," said Cameron.