FRANKFURT: European shares rebounded on Wednesday from the previous day’s bruising selloff, as investor fears over the ripple effects of a prolonged Middle East conflict ebbed for the time being, while Spanish stocks shrugged off US trade threats.
The pan-European STOXX 600 closed 1.4 percent higher, after dropping more than 4 percent from Friday’s record high, while Germany’s DAX gained 1.7 percent. The rally marked the biggest one-day gain for both indexes since May.
Sentiment stabilized after the New York Times reported Iranian intelligence operatives signalled openness to talks with the US Central Intelligence Agency on ending the war. Iran’s semi-official news agency Tasnim later said the story was “absolute lies,” citing a source in the Iranian intelligence ministry.
Still, the Times report was enough to bring out buyers in Europe.
“The merest whiff that a resolution to the conflict is on the cards is helping European stocks rebound,” said Kathleen Brooks, research director at XTB. “Sentiment is fragile and headline risk can materialize at any time.”
The US sank an Iranian warship off the Sri Lankan coast, widening the war zone, while US Defense Secretary Pete Hegseth said that the US could fight as long as needed. Banks, which shed over 7 percent in the selloff, rebounded 2.3 percent, led by Santander and BBVA.
Travel and luxury stocks, the epicentre of the selloff, rose 2.8 percent and 1.9 percent respectively. Tech stocks and industrials gained 2.5 percent and 1.9 percent, among the biggest boosts to the STOXX 600.
Spain’s finance-heavy benchmark index gained 2.5 percent. It fell as much as 1 percent in early trading after US President Donald Trump threatened to impose a trade embargo on the country, following Madrid’s refusal to allow the US military to use its bases for missions linked to strikes on Iran.
Oil prices remained close to multi-month highs as attacks disrupted energy infrastructure and shipments across the region. Europe’s reliance on energy and goods shipped through the Strait of Hormuz has left it exposed, reviving inflation fears, as alternative routes would likely mean higher cost pressures.
The oil sector declined for the second consecutive session, down 0.3 percent. Markets are also contending with a mixed economic picture. PMI readings showed euro zone services activity expanding slightly faster in February, Germany’s growth hit a four-month high, France remained stuck in contraction, and Italy’s growth cooled.
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