European equities moved decisively higher at the open on Friday after markets received their strongest signal so far that a possible peace deal between Iran and the United States might be within reach. The pan-European STOXX 600 rose 1% to a two-week high and was positioned for its best session in more than two weeks.
National benchmarks advanced across the region. Germany's DAX vaulted 1.5%, France's CAC 40 gained 1.2% and London's FTSE 100 climbed 0.8%. Italy's FTSE MIB rose 1.2% and reached a fresh record peak during the session.
Airline stocks were among the standout performers as crude oil prices fell. Air France KLM SA (EPA:AIRF) jumped 5.8%, while International Consolidated Airlines Group S.A. (BME:ICAG) gained 4.5%. Wizz Air Holdings PLC (LON:WIZZ) increased about 6% and Deutsche Lufthansa AG (ETR:LHAG) rose 4.6%.
Crude oil dropped to two-month lows after President Donald Trump said a historic peace deal could be signed in Europe as early as this weekend - the clearest tangible sign yet of a diplomatic breakthrough. That comment helped drive a broad rally in cash markets.
At the same time, the conflict backdrop remained unsettled. Iran has continued to attack ships in the Strait of Hormuz, a dynamic that has so far kept a check on full risk-on sentiment among traders and investors.
The relief rally followed a major policy move from the European Central Bank the previous day, when the central bank raised interest rates for the first time in nearly three years in an effort to combat war-driven inflation. That hawkish pivot added another layer to the week’s volatile trading.
Overall, the move capped a volatile week for European equities. Investors were forced to reconcile a blowout U.S. jobs report, the ECB's more hawkish stance, and abrupt headlines from the Middle East while attempting to anticipate the Federal Reserve's next steps.
Reflecting that mix, the STOXX 600 - which is particularly sensitive to developments in the Middle East given the Eurozone's reliance on energy imports - had been flirting with a 0.2% weekly loss before the late-day rally, which could still push it into positive territory for the week.
Analysts at HSBC Asset Management noted the broader context: "The global economy faces a complex set of supply shocks but markets have shaken off geopolitical worries, helped by strong corporate profits. The confusing macro landscape means episodic volatility is to be expected."
Other notable corporate moves included a near 6% jump for Eramet SA (EPA:ERMT) after reports that a U.S.-backed fund was exploring an investment in the company. Fraport AG (ETR:FRAG) added 5% after publishing higher traffic numbers for May.
For now, traders are balancing the prospect of easing geopolitical tensions against the ongoing military activity in key shipping lanes and a shifting central bank environment. That balance is producing pronounced intraday swings even as headline risk nudges markets higher on optimism.
Market snapshot:
- STOXX 600: +1.0% (two-week high)
- DAX: +1.5%
- CAC 40: +1.2%
- FTSE 100: +0.8%
- FTSE MIB: +1.2% (record peak)