By Avinash P and Johann M Cherian
March 25 (Reuters) – European shares rose more than 1% on Wednesday on expectations of an imminent de-escalation in the Middle East conflict, though concerns about the war’s economic impact kept gains in check.
The pan-European STOXX 600 was up 1.4% at 587.04 points by 0856 GMT, on track for its third straight day of gains after briefly dropping 10% from record highs earlier this week.
The major regional bourses also advanced more than 1%, with Germany’s DAX leading the pack, while an index tracking volatility slipped 1.8 points to 29.9.
All the key sectors logged gains, with cyclicals such as industrial goods and banks up 2% each. Cyclical sectors are those that are typically affected the most during an economic slowdown.
Travel and leisure stocks, which were hit earlier in March due to soaring energy prices, added 1.8%, with airlines, such as Lufthansa and Air France climbing 2.4% and 3.7%, respectively.
Energy stocks were up marginally, after Morgan Stanley turned bullish on the sector.
Oil prices slipped below the $100 mark after President Donald Trump said the U.S. was making progress in its efforts to negotiate an end to the war with Iran. A source confirmed that Washington had sent Iran a 15-point settlement proposal.
However, caution lingered as Tehran denied that direct talks had taken place, with a spokesperson saying the U.S. is “negotiating with itself”.
“The market is right now running on optimism that is being injected by the U.S. alone,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “If Iran doesn’t cooperate in the coming days… we still could see oil prices spike back up and above the $100 per barrel level.”
There is little clarity on whether the talks would lead to the reopening of the Strait of Hormuz, which has been largely cut off since the Iran war erupted, with analysts saying that the long-term repercussions of elevated crude prices on the global economy could be drawn out.
Europe’s dependence on oil imports has weighed on equities since the start of the war and the STOXX now underperforms the U.S. benchmark S&P 500.
BlackRock CEO Larry Fink in a BBC interview said that if oil prices rise to $150 a barrel, it could trigger a global recession.
Among individual stocks, Spanish drugmaker Grifols climbed 8.1% after announcing it had approved a U.S. initial public offering of its biopharma business.
INWIT dropped 2.5% after Swisscom said its Italian business Fastweb + Vodafone was terminating its master service agreement (MSA) with the country’s top mast operator.
(Reporting by Avinash P and Johann M Cherian in Bengaluru; Editing by Eileen Soreng and Sonia Cheema)
