European stock markets dipped slightly on Friday as investors shunned riskier assets after the abrupt cancellation of U.S.-Iran peace negotiations. According to The Economic Times, the pan-European STOXX 600 index dipped 0.1% by 0711 GMT, with losses in miners and utilities offsetting gains in energy and defense stocks. The setback contributed to the existing cloud of uncertainty regarding future stability, as Switzerland said U.S. talks with Iranian negotiators would not take place on Friday, as Vice President JD Vance dropped plans to travel to the country. The stocks had rallied to record highs earlier this week, driven by signs of progress in the U.S.-Iran peace talks and a gradual reopening of the Strait of Hormuz, a vital artery for global energy supplies.
The preliminary peace agreement between the US and Iran, which would open the Strait of Hormuz and end the three-month-long Middle East conflict, continues to boost global risk sentiment significantly. As reported by Reuters, the US and Iran reached a preliminary pact to end their war and reopen the Strait of Hormuz, with the deal scheduled to be signed on Friday. European shares had broadly underperformed their peers in the US and Asia since March due to the continent's reliance on the Strait of Hormuz for crucial oil supplies. The agreement has helped surging technology stocks, which make up a smaller share of the European benchmark, and in the case of the US, investors' view that it was less exposed economically to the war in Iran. Brent crude prices fell nearly 5% after U.S. and Iranian officials said they had agreed on a framework for the deal. Chris Beauchamp, chief market analyst at IG Group, noted that "If you really do start to get oil flowing back again in a sustainable way, then it will give European markets a real boost."
In individual stock movements, Entain climbed 1.7% after Reuters reported that the Ladbrokes-owner has begun exploring options for its joint venture in Central and Eastern Europe, including a possible sale. However, ASML dipped 1.8% after Bloomberg reported that U.S. Commerce Secretary Howard Lutnick told the company that Washington is concerned that one of its top chipmaking machines may have found its way to China in violation of U.S.-led export restrictions. The broader travel and leisure sector hit a record high, with the sector benefiting from the improved geopolitical outlook, while tech stocks supported the STOXX index, with Aixtron up 4.6% and BE Semiconductor and ASML adding 1% each.
Among the few decliners, energy stocks fell 3.1%, tracking lower crude oil prices following the US-Iran agreement. As reported by Reuters, the energy sector's weakness contrasted sharply with the broader market gains, reflecting the sector's sensitivity to geopolitical developments affecting oil supply routes through the Strait of Hormuz. Despite the agreement, most analysts anticipate energy costs to stay elevated as oil flows resume slowly through the Strait and Middle Eastern countries repair damaged infrastructure. Citigroup's Manthey noted that "For us to turn more constructive, we really need to see reasons for earnings from here being upgraded. If oil stays low or goes even lower, then of course on the margin it will be helpful. But is it enough remains to be seen." The European Central Bank lifted interest rates by 25 basis points last week to combat price pressures, and traders are pricing in another hike by year-end, according to LSEG-compiled data.
