Markets rally on oil drop
European stocks climbed on Thursday as crude oil prices retreated, easing fears of a prolonged supply disruption through the Strait of Hormuz. The Stoxx 600 index gained 1.2%, its best single-day performance in three weeks. London's FTSE 100 rose 0.9%, while Frankfurt's DAX and Paris's CAC 40 each added more than 1%.
Brent crude settled at $97.40 a barrel, down 3.2% on the day. The drop followed unconfirmed reports that US and Iranian negotiators had made progress on a framework for de-escalation. The Strait of Hormuz, through which about 20% of the world's oil passes, has been effectively closed since late May after Iran threatened to block the waterway.
Airlines and energy lead gains
Airline stocks jumped on the lower fuel price outlook. Ryanair rose 4.1%, and easyJet gained 3.8%. Energy companies, however, saw mixed results. Shell and BP each fell about 1% as the oil price decline offset the broader market optimism. Defensive sectors like utilities and healthcare lagged as investors moved into cyclicals.
The German DAX was boosted by industrial stocks, with Siemens and Volkswagen each rising more than 2%.
Economic outlook remains uncertain
Analysts cautioned that the rally may be short-lived. The EU has warned that the Iran conflict could cause a stagflation shock for the European economy. Eurozone inflation data due next week is expected to show prices rising at an annual rate above 3%, well above the ECB's 2% target.
The IEA warned earlier this week that oil markets could enter the "red zone" by July if supply routes remain disrupted. For now, investors are betting on diplomacy. But with Hezbollah rejecting a ceasefire on the same day, the path to stability remains unclear.