It was a case of risk-on for Europe as crude gave way to the prospect of a US-Iran deal, and you could see it in the way the market re-ordered itself. The pan-European index was up in a big way, and the IBEX 35 in Spain hit an all-time high as investors made room for some cyclical exposure while oil cools off.
Oil slide resets sector leadership
Brent was down 3.7% from where it left off, after President Trump put the brakes on any plans to hit Iran and put forward the idea of a deal by the weekend. That has energy shares 1% in the red and cedes the floor to the rest of the market.
You can see why: with the price of jet fuel coming down, the outlook for earnings in the travel and leisure space is clearer. The sector was up 4.1% for a five-month best. Lufthansa was 5.2% higher, Air France 8.4%, and TUI AG 8.7%. The market is in the mood to back the demand side of things as tensions let up.
Valuations steady confidence
There has been some back-and-forth over the last few weeks with the AI and bank regulation stories, but the drop in oil was a welcome lift for the mood. Chris Beauchamp at IG Group says that on a relative basis, valuations here are more attractive than in the US, and that’s enough to put investors at ease.
Indices and weekly scorecard
The STOXX 600 made 1.9% to 633.21, which is a 1.7% week in the bag. The IBEX 35 in Spain did even better, up over 2.6% to a record on the strength of wide-spread buying. It was a way to put a four-day skid behind us after the ECB’s rate move on Thursday was taken in stride.
Some of the numbers to have on your radar today:
– STOXX 600 to 633.21 (up 1.9%)
– A 4.3% gain for the banks index
– Energy 1% lower on the retreat in oil
– Travel and leisure at 4.1%, a five-month top
– IBEX 35 up 2.6%+ for a record
Policy and macro signals
LSEG figures show the street is still pricing in another 25 bps in borrowing costs before year-end. As for the hard data, German inflation ticked down to 2.7% in May. Over in the UK, the economy shrank 0.1% in April, so the growth picture is still a bit thin.
Stock highlights and strategic pivots
Banks were the talk of the town as rates work in their favour and value gets some attention. The index for them was 4.3% up; you had Deutsche and Societe Generale each moving more than 6%. It’s a good set-up if the economy holds and we don’t see a lot of credit write-offs.
Then there was the renewables trade in Spain. Acciona Energia was 13% in the green after word came out that some global funds are in on a bid for the firm. The parent, Acciona, was 10.4% up, and you can bet some of that will rub off on other transition stories.
Healthcare kept its pace. Novo Nordisk was 1.7% higher once the UK’s regulator gave the nod to its weight-loss drug, making Britain the first in Europe to be able to get the oral version. It’s one more piece in the long-term story for the stock.
And there were some in the corner for the AI hardware and the like. Entain was 3.2% up on a Barclays upgrade of the gaming sector. Legrand and Schneider were 1% and 1.4% in the plus, showing there is still an appetite for the suppliers of this kind of kit.
Why it matters and what is next
This rotation, with oil at the helm, is a way for Europe to make up some ground on the US. Should the Middle East stay quiet and the 25 bps in rates hold, we could see the rally get wider. For now, the question is whether you can have cheaper energy without it eating into capex in the sector.
