European stocks surged significantly, marking the largest increase in nearly a month, as investors grew increasingly optimistic about the potential for an agreement between the US and Iran.
The Stoxx Europe 600 Index closed 2.2% higher. Washington has presented Tehran with a memorandum, and if accepted, it would gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports.
Travel-related stocks outperformed, led by airlines, with Air France-KLM jumping 9.6% and Ryanair climbing 10%. The energy sector performed the worst, as Brent crude fell 6.8% to $102 per barrel.
“Markets continue to reflect expectations of easing tensions and loosening supply constraints,” said Geoff Yu, senior macro strategist at Bank of New York Mellon. “The road ahead will remain bumpy, but the direction seems clear.”
Earnings reports were released in abundance during the day. Novo-Nordisk A/S rose 2.5%, driven by sales growth in the first quarter fueled by its new Wegovy tablets. Auto stocks surged, with BMW shares leaping 5.4%.
The region’s stock markets remain below record highs reached earlier this year. The gains in the Stoxx 600 Index have been driven primarily by a small number of companies, with six stocks accounting for nearly 90% of the increase by the end of April.
The market is “increasingly looking for a new narrative to take over,” said Joachim Klement, head of strategy at Panmure Liberum. “This raises the risk of sudden rotation in leading sectors and a collapse in momentum.”