STOXX 600 logs best day in a year as Iran truce fuels relief rally

FRANKFURT: European shares jumped more than 3 percent 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 3.7 percent at 612.32 points, posting its biggest one-day gain in a year.

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

The agreement came less than two hours before a US deadline for Tehran to reopen the Strait of Hormuz, sending oil prices tumbling below USD100 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 percent and 7.1 percent. 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.

“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 percent to the top of STOXX 600, while Germany’s Salzgitter and Thyssenkrupp added 15.2 percent and 9 percent, respectively.