European Stocks Hit Record Highs, US-Iran Deal Drives Risk-On Trade
European stocks rose to record highs on Monday (June 15) after the United States and Iran agreed to a deal that halts hostilities and opens the door to normalizing energy flows through the Strait of Hormuz. The Euro STOXX 50 rose 0.8% to a record 6,236, while the STOXX Europe 600 gained 0.3% to 635.
Market sentiment improved as the deal lowered oil prices and government bond yields in several major European economies. If energy supplies through Hormuz resume, energy cost pressures could ease and inflation risks could potentially decline. This has led financial markets to trim interest rate hike expectations, with investors now pricing in only one hike each from the ECB and the Bank of England by the end of the year.
Banking stocks were among the main drivers as the outlook for credit activity improved as interest rate and energy pressures eased. Santander, Deutsche Bank, and BBVA rose between 3% and 4.56%, reflecting investors' shift to sectors sensitive to cyclical economic recovery.
The industrial sector also received support from expectations of better demand and lower electricity costs. Safran rose 3.5%, while Siemens gained 2.2%. This strengthening indicates the market is beginning to interpret the energy downturn as a positive catalyst for corporate margins and European manufacturing activity.
Fundamentally, the main transmission for European equities comes from the energy and interest rate channels. The US-Iran deal has pressured oil, easing inflation concerns, easing yield pressure, and improving cyclical stock valuations. However, the sustainability of the rally still depends on the official signing of the deal on Friday, the physical opening of Hormuz, the direction of oil prices, and policy signals from the ECB and the Bank of England.
Source: newsmaker.id
