FRANKFURT: European shares edged higher on Friday, wrapping up the month with gains as investors clung to hopes that a proposed deal to extend a Middle East ceasefire and reopen the strategic Strait of Hormuz could be finalized.
The market optimism followed reports that US President Donald Trump was weighing an initial US-Iranian agreement. He said he would make a final decision regarding the deal on Friday.
“The market’s patience may be tested if a deal is not agreed by early June, and this could have big ramifications for the oil price and the global stock market rally,” said Kathleen Brooks, research director at XTB.
The pan-European STOXX 600 index rose by 0.1 percent to 626 points, securing a positive finish for the week.
The benchmark index had come within striking distance of record highs earlier this week and secured a 2.5 percent monthly gain, but recent escalations in the Middle East conflict capped further advances.
European equities continue to lag tech-heavy peers in Asia and the United States due to the region’s limited exposure to technology stocks.
Asked whether a geopolitical resolution could trigger a major rally, Marija Veitmane, head of equity research at State Street, said no and pointed to structural demand destruction and looming rate hikes that could pressure corporate profitability.
Data supported the hawkish outlook, showing inflation in the euro zone’s four largest economies hovering above the European Central Bank’s 2 percent target for a third straight month. The figures are expected to cement a rate hike next month, with investors pricing in 50 basis points of tightening by year-end, according to LSEG data.
Prices of crude oil, a key resource for energy-deficient Europe, slipped and were on track for their first weekly drop in two months.
Airline stocks are sensitive to energy prices, and Lufthansa and Air France both added over 2 percent, while consumer discretionary stocks such as luxury added 1 percent.
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