Europe close: Stocks rise on renewed hopes for Iran de-escalation

1st Apr 2026 15:41

(Sharecast News) - European equity markets rallied sharply on Wednesday as easing geopolitical expectations boosted risk appetite, while oil prices retreated despite ongoing tensions in the Middle East.

Danni Hewson, head of financial analysis at AJ Bell, noted that "markets remained in a resolutely positive mood on Wednesday as they continue to take heart from hints at an end to the conflict in the Middle East."

The pan-European Stoxx 600 surged 2.5% to 597.69, with Germany's DAX jumping 2.73% to 23,298.89 and France's CAC 40 rising 2.1% to 7,981.27.

London's FTSE 100 also advanced, gaining 1.85% to 10,364.79, although Hewson said "the ingredient holding the FTSE 100 back was the same one that helped the index outperform some of its global counterparts in recent weeks, namely the heavy weighting of BP and Shell," adding that "banks, aviation-related stocks, miners and stocks with links to the US were among those enjoying gains."

Energy markets moved lower, with Brent crude futures last down 1.77% on ICE at $102.13 per barrel and the NYMEX quote for West Texas Intermediate declining 1.31% to $100.05, with Hewson noting that "oil prices are lower than levels seen at the start of the week but are teetering around the $100 per barrel mark, as it is still uncertain how long disruption to regional infrastructure and shipping routes will last."

Sentiment was driven by comments from US president Donald Trump, who said on Tuesday that American forces could end operations in Iran "very soon," indicating a potential timeline of two to three weeks, with or without a ceasefire agreement.

He also signalled that the US would not take responsibility for securing the Strait of Hormuz, instead leaving that role to "whoever's using the strait."

The prospect of a near-term de-escalation lifted equities, even as conflict risks remained elevated, with Israel continuing strikes on Iran, Houthi forces launching missiles at southern Israel, and additional US troops being deployed to the region, including the aircraft carrier USS George HW Bush and supporting vessels.

However, IG chief market analyst Chris Beauchamp cautioned that "markets still seem to be betting on a resolution to the war and a reopening of the Straits of Hormuz.

"But with the key waterway still closed and neither side prepared to talk it seems difficult to envisage a return to a complete 'risk-on' environment," he said, adding that "it is impossible to determine how much of the bounce that kicked off on Monday is from genuine dip buying or just the quarter-end/new quarter positioning."

Euro area factory activity improves in March

Economic data painted a more mixed picture.

In the eurozone, factory activity improved, with the S&P Global manufacturing PMI rising to 51.6 in March from 50.8 in February, exceeding the preliminary estimate of 51.4 and signalling expansion.

However, S&P Global Market Intelligence principal economist Joe Hayes warned that "the war in the Middle East has already left its mark on euro area manufacturing," noting that delivery times had lengthened sharply and input cost inflation had climbed to its highest level since late 2022.

He added that rising costs were increasingly being passed through to final prices, which could weigh on demand and competitiveness.

Beauchamp also warned that "Europe's supply crisis has yet to really bite, but it can't be far away.

"Optimism might well be misplaced once the real impact starts to become clear."

In the UK, manufacturing conditions softened slightly, with the PMI easing to 51.0 from 51.7, below the flash estimate of 51.4 but still indicating a fifth consecutive month of expansion.

The survey showed input cost inflation rising at its fastest pace since 1992, driven by surging energy prices and supply chain disruption linked to the Middle East conflict and the closure of the Strait of Hormuz.

S&P Global Market Intelligence director Rob Dobson said output contracted for the first time in six months, adding that "the darker economic and geopolitical backdrop is also weighing on business confidence and hiring trends," with optimism falling to a six-month low.

Broader UK sentiment also weakened, with the YouGov/Cebr consumer confidence index falling 2.9 points to 105.8 in March, marking its sharpest decline since April 2025 and its lowest level since December 2023.

The drop was led by a deterioration in households' financial outlook, while job security perceptions remained negative.

Across the Atlantic, US data showed resilient consumer demand but mixed signals in the labour and housing markets.

Retail sales rose 0.6% month-on-month in February, beating expectations and marking the strongest increase in seven months, while ADP reported that private sector employment increased by 62,000 in March, ahead of forecasts.

However, mortgage applications fell 10.4% in the latest week as rising borrowing costs weighed on activity.

Hewson added that "the ISM manufacturing index for March beat expectations, showing factory activity in the US remained healthy despite events in the Middle East," but cautioned that "the data showed a big uptick in inflation as the prices index moved to 78.3 - a 7.8 point increase."

Airlines rise on hopes of Iran de-escalation, Rightmove in the red

In equities, airline stocks were among the strongest performers on hopes of a de-escalation in the Middle East, with Deutsche Lufthansa climbing 7.95%, Air France-KLM gaining 8.93% and British Airways owner International Airlines Group rising 5.02%.

By contrast, Berkeley Group slumped 9.66% after pausing new land acquisitions amid market uncertainty, while Rightmove slipped 1.4% following news of a £1.5bn class action lawsuit from estate agents.

Hewson said "Rightmove shares got a nasty jolt on news of a £1.5bn legal claim being filed against the company with the Competition Appeal Tribunal," adding that "Rightmove's statement makes clear it will fight any action and argues it provides value to its agent partners and consumers," while noting that the shares had already pared back some losses.

Danish wind turbine maker Vestas fell 1.95% despite reporting new order wins, even as analysts pointed to improving market conditions and a growing order pipeline.

Reporting by Josh White for Sharecast.com.