Source: Sharecast
The pan-European Stoxx 600 rose 1.8% to 632.73.
Germany’s DAX gained 1.66% to 24,612.56, France’s CAC 40 advanced 1.83% to 8,350.87, and London’s FTSE 100 climbed 1.63% to 10,471.72.
In commodities, Brent crude futures were last down 4.06% on ICE at $86.71 per barrel, while the NYMEX quote for West Texas Intermediate dropped 3.93% to $84.26.
Axel Rudolph, chief technical analyst at investing and trading platform IG, said: “An apparently imminent agreement between the US and Iran provoked a drop in the oil price and added gains to global stock markets.”
“The price of crude oil slid to a near two-month low amid hopes of an imminent agreement between the US and Iran which would restore energy trade through the Straits of Hormuz,” he added.
Trump said an agreement ending the war and reopening the Strait of Hormuz could be signed this weekend, although Iranian officials strongly denied that a deal was imminent.
Patrick Munnelly, market strategy partner at TickMill, said London had finished the week with “a proper risk-on burst” as hopes that the three-month conflict and blockade of the Strait of Hormuz could be nearing an end prompted a sharp market rotation.
“That headline flipped the market script,” he said.
“The same Middle East escalation that had supported oil, defence and inflation hedges earlier in the week suddenly became a disinflationary tailwind.
“Crude prices dropped more than 4%, and the UK equity market rotated hard into the beneficiaries of lower energy costs and easier financial conditions.”
Rudolph said US stock indices initially added to Thursday’s strong gains amid a rebound in consumer sentiment, although technology volatility ahead of the SpaceX initial public offering tempered the advance.
“Even though the US dollar ended the week on a weaker footing amid retreating yields, precious metals like gold and silver saw their fifth consecutive week of falling prices,” he said.
Bundesbank cuts growth forecasts, raises inflation outlook
On the economic front, Germany’s central bank cut its growth forecasts and raised its inflation outlook, warning that higher energy prices linked to the Middle East conflict were weighing on Europe’s largest economy.
The Bundesbank now expects calendar-adjusted GDP growth of 0.5% in 2026 and 0.8% in 2027, down from previous forecasts of 0.6% and 1.3%, respectively.
Growth is then expected to accelerate to 1.4% in 2028.
Bundesbank president Joachim Nagel said economic activity would regain momentum over the forecast period, supported by falling energy prices, a stronger global economy and fiscal stimulus.
However, he warned that higher energy costs would weaken household purchasing power and consumption, while businesses faced supply bottlenecks, softer demand and elevated uncertainty.
The Bundesbank raised its harmonised inflation forecasts to 2.9% in 2026 and 2.7% in 2027, from previous estimates of 2.2% and 2.1%, before inflation eases to 1.9% in 2028.
Nagel said the outlook remained subject to “particularly high uncertainty given the geopolitical situation”.
The UK economy meanwhile contracted by 0.1% in April, in line with expectations, following growth of 0.3% in March and 0.4% in February.
The Office for National Statistics said services output fell 0.2%, partly offset by a 0.1% rise in construction, while production was unchanged.
Administrative and support services fell 2.2%, while arts, entertainment and recreation output declined 4.3%.
Sports, amusement and recreation activities dropped 9.1%, partly because the Middle East conflict led to the cancellation of sporting events affecting UK-based businesses.
Despite April’s decline, GDP grew 0.7% in the three months to April, following growth of 0.6% in the three months to March and 0.5% in the three months to February.
UK inflation expectations rose sharply in May, according to the Bank of England’s quarterly survey.
Consumers estimated the current inflation rate at 5%, up from 4.6% in February, while expectations for inflation over the coming year increased to 4% from 3.2%.
Expectations for the following year rose to 3.5% from 3.2%, while five-year expectations increased to 3.9% from 3.7%.
The survey also showed that 78% of consumers believed faster inflation would weaken the economy, up from 72% in February.
A total of 53% expected interest rates to rise over the next year, compared with 30% in the previous survey.
UK housing demand recovered at the start of June after temporarily falling during the heatwave and school holidays, according to Rightmove.
Buyer demand dropped 8% in the week beginning 22 May but recovered from 1 June and exceeded pre-heatwave levels by 6 June.
However, enquiries remained below the level recorded a year earlier.
Colleen Babcock, property expert at Rightmove, said short-term events such as extreme weather and school holidays often caused temporary disruptions to housing activity, but noted that demand had rebounded quickly.
Airlines rise, energy names fall as oil prices tumble
In equity markets, airline stocks rallied on hopes of a settlement and lower fuel costs.
Deutsche Lufthansa rose 5.18%, while Ryanair gained 4.37%.
Munnelly said travel and leisure shares had caught a strong bid as investors moved into the beneficiaries of lower energy costs.
“Airlines were obvious beneficiaries of the oil move, with British Airways owner IAG and Wizz Air among the strongest names,” he said.
“For carriers, lower fuel prices are a direct margin tailwind, and a less hostile geopolitical backdrop also helps sentiment around summer travel demand.”
On the downside, oil producers fell as crude prices declined.
Equinor dropped 4.6%, Vår Energi lost 5.45%, Eni fell 2.25%, TotalEnergies declined 2.08%, and Repsol was down 4.9%.
Munnelly said energy was the only major losing sector in London as investors rapidly marked down the geopolitical risk premium embedded in crude prices.
“If a deal is confirmed, the market will start pricing not just lower spot oil but also a reduced inflation impulse into the second half of the year,” he said.
Reporting by Josh White for Sharecast.com.