European shares closed at their highest level in over a month on Friday, with the pan-European STOXX 600 ending 0.73% higher at 625.12 points and logging its biggest weekly gain in seven weeks. According to Reuters, the rally was led by technology stocks as risk sentiment got a lift on expectations that a deal to end the Middle East conflict could be near. U.S. Secretary of State Marco Rubio said there was some progress towards an agreement with Tehran, though more work is required, with key disagreements involving Iran's uranium stockpile and controls on the Strait of Hormuz. The gains reflect broader market optimism about potential resolution of the U.S.-Iran impasse that has ensued since Washington suspended bombing in a fragile ceasefire in early April.
European technology stocks jumped 3.2% and have seen the biggest gains this quarter on the STOXX 600, as reported by Reuters. The sector was boosted by AI optimism and strong forecasts from chip giant Nvidia, with investors keen on the company's results coming after U.S. markets close. Among semiconductor shares, Infineon added nearly 8%, STMicroelectronics gained 5.2%, and ASML rose 4.7%. ASML expects the booming global semiconductor market to remain "tense" with tight supply as demand from AI, satellites and robots outpaces industry production capacity. European AI equipment stocks such as Legrand and Schneider Electric also gained over 3%. Also aiding the sector was French President Emmanuel Macron's comments that the government will invest an additional EUR1 billion ($1.16 billion) in its quantum strategy and EUR550 million to support the microelectronics sector.
Defence shares led sectoral gains with a 3.2% jump, as reported by Reuters. Czech firm CSG added 8.7% after posting strong first-quarter results, while UK's Babcock rose 5.3% after brokerage Peel Hunt upgraded the stock to "buy" from "add." The sector's gains reflect investor optimism about potential progress in U.S.-Iran negotiations, though caution remains given ongoing geopolitical tensions in the Middle East. Reflecting the broader uncertainty, crude prices rose 1% to $103 a barrel, with analysts expecting a deal that includes opening the strategic waterway to lift European equities given the region's dependence on oil imports that have become costly since the war.
Among individual stocks, Puig tumbled 13.4% after the Spanish perfumery ended merger talks with U.S. cosmetics maker Estée Lauder, while Julius Baer fell 6.9% after the Swiss bank's net new money inflows came in below expectations. Richemont, the Cartier owner, reported better-than-expected fourth-quarter revenue but shares were volatile and ended marginally lower. Marks & Spencer jumped 6.6% after forecasting profit growth for the next year despite a slide in annual profit due to a cyber hack disruption. Despite Europe's small AI tech exposure, the sector's gains have not been able to lift the STOXX 600 to record highs, similar to rallies seen in the U.S. and Asia. On the positive side, German consumer sentiment recovered heading into June, while a separate reading confirmed that the economy grew by 0.3% in the first quarter of 2026.
Germany's DAX led gains among regional indexes with a 1.1% rise, while other data reports have suggested price pressures are heating up. Europe's economy commissioner Valdis Dombrovskis became the latest official to say the European Central Bank would need to react to rising inflation. Money markets price in at least two ECB interest rate hikes before the end of the year. The positive sentiment comes despite ongoing concerns about Middle East tensions, with analysts noting that Europe's economy has lagged peers and could benefit significantly from a Middle East deal that includes opening the strategic waterway. As per UBS Global Wealth Management's chief investment officer Mark Haefele, "We are neutral on Europe and euro zone equities, given their sensitivity to higher energy costs, while we view the more defensive Swiss market and European healthcare more favourably."
