European stocks logs best day in a year as Iran truce fuels relief rally

EUROPEAN shares jumped more than 3 per cent on Wednesday after US President Donald Trump agreed to a two-week ceasefire with Iran, sparking a relief rally across global markets with investors optimistic trade through the Strait of Hormuz could resume soon.

The pan-European Stoxx 600 index was up 3.9 per cent at 613.50 points, posting its biggest one-day gain in a year.

Regional bourses also moved higher, with Germany’s DAX climbing 4.7 per cent while France’s CAC 40 gained 4.5 per cent.

The agreement came less than two hours before a US deadline for Teheran to reopen the Strait of Hormuz, sending oil prices tumbling below US$100 a barrel. Still, some worries lingered as Israel continued to strike Lebanon.

“Investors should not be surprised if we do see some period of re-escalation in rhetoric, or if some of the energy flows through the Strait of Hormuz perhaps disappoint what people might hope for. But overall, the announcement is a positive development,” said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management.

Europe’s fear gauge, the Stoxx volatility index, fell below 25 points for the first time in over three weeks.

European equities have come under pressure since the US-Israel war against Iran, with the region’s heavy dependence on oil imports through the largely blocked passage making it vulnerable to energy shocks.

The gains on Wednesday were broad-based, with travel, industrials, and banking advancing between 5.7 per cent and 7.1 per cent. They are typically seen as prime beneficiaries of lower energy costs and falling bond yields.

Barclays’ analysts said they expected limited earnings impact for European banks, and maintain their positive industry view on the sector despite a near-term recovery depending on a ceasefire.

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“Investors are not turning bearish, but appetite to ‘buy the dip’ remains limited absent a clear de-escalation,” they said in a note.

Steelmakers gained with the sector having come under pressure as the cost of production is highly dependent on energy prices. ArcelorMittal rose 12.8 per cent to the top of Stoxx 600, while Germany’s Salzgitter and Thyssenkrupp added 15.2 per cent and 9 per cent, respectively.

The technology sector jumped 5.6 per cent, underpinned by strong performances among chipmakers. Shares of Infineon, Soitec, ASML and SUSS Microtec were up between 8.9 per cent and 11.8 per cent.

Energy stocks were the sole outliers, down 2.3 per cent. Shell fell 4.7 per cent, after the oil major cut its first-quarter gas production outlook while signalling a surge in oil trading profit and a dent to short-term liquidity.

Traders are currently pricing in two quarter-point rate hikes from the European Central Bank by year-end, according to LSEG data. REUTERS