European shares extend rally as investors await details of US-Iran agreement

[BENGALURU] European shares edged higher on Tuesday (Jun 16), extending the previous session’s rally, sparked by a preliminary agreement between the US and Iran that could end their war and allow a resumption of oil flows through the Strait of Hormuz.

The pan-European Stoxx 600 index ended 0.3 per cent higher, after closing at a record high on Monday. The index has gained over 7 per cent so far this year compared to the US benchmark S&P 500’s 10 per cent advance.

Oil prices declined for the fourth consecutive session, in a positive development for the oil-import-dependent continent, with Brent Crude trading near US$82 a barrel, easing some concerns over inflation that had pushed expectations of further monetary tightening.

“Investors would do well to look beyond this and welcome the dissipation of geopolitical risk and, with it, the dire scenarios of a global recession or a sustained inflationary shock,” said Nabil Milali, a multi-asset and overlay portfolio manager at Edmond de Rothschild Asset Management.

Sectors that are expected to fare better during times of economic certainty did well in Europe on Tuesday. Industrial goods and services advanced 1.1 per cent, while banks led broader gains with a 1.7 per cent jump.

An index tracking defence stocks added over 1.3 per cent.

Many European sectors still remain below pre-war levels, with analysts expecting rotations into segments that have been hit the hardest by the conflict.

But, Milali said, “that is not the case. European indices are underperforming compared to their US and Asian counterparts, which are being driven by the technology sector”.

“Still, cyclical sectors are regaining some momentum, such as consumer discretionary and construction, as are European small caps.”

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Among corporate updates, UniCredit gained 4.2 per cent after Germany rejected the Italian lender’s offer to buy Commerzbank shares.

Concerns also resurfaced that tech companies were increasingly relying on debt funding, which has sparked selloffs globally several times since last year.

STMicroelectronics fell 4.1 per cent after announcing plans to issue convertible bonds worth US$1.5 billion. The technology sector on the Stoxx 600 lost 1.7 per cent.

Rathbones plunged 17 per cent to mark its biggest intraday drop on record, after the wealth manager said that it will pause onboarding new clients for 12 months.

This week, the US Federal Reserve’s interest rate decision is on the radar and comments from new Fed chair Kevin Warsh could set the tone for global markets.

Traders are pricing in another hike by the European Central Bank by year-end, according to LSEG-compiled data, after it lifted interest rates by 25 basis points last week to combat price pressures.

The Bank of Japan raised borrowing costs to a 31-year high on Tuesday to counter price pressures linked to energy. REUTERS