Optimism regarding a potential breakthrough in peace negotiations in the Iran conflict propelled European equity markets higher as the week drew to a close. The Dax climbed as much as 2.2 percent to 24,753 points, while the EuroStoxx50 advanced by 2.4 percent. U.S. President Donald Trump recently announced, as he has frequently in recent weeks, that an agreement with Iran is imminent. The Republican stated that a deal could be finalized in the coming days. However, experts cautioned against celebrating a peace settlement too early. "The price gains may be built on sand if a credible end to the war is not confirmed by all parties," said Jochen Stanzl of Consorsbank. "The market will not remain satisfied with a mere declaration of intent for long."

In the oil market, expectations of a peace deal sent prices sliding. Since Wednesday, benchmarks for North Sea Brent and U.S. WTI have each dropped by a good 7.5 percent to $85.80 and $83.20 per barrel, respectively. These represent the lowest levels since mid-March and April. Confidence that an agreement will ultimately be reached and the Strait of Hormuz reopened has grown, said Tamas Varga, an analyst at PVM Oil Associates. However, he explained that one must not forget that global and regional oil reserves remain low and could continue to fall even with an agreement, as it takes time to restore an uninterrupted oil supply.

Since the start of the war in late February, oil prices have skyrocketed, with Brent briefly hitting $126 per barrel. Iran has been blocking maritime traffic in the Strait of Hormuz, through which one-fifth of the world's oil and liquefied natural gas requirements were shipped prior to the conflict.

BANKING STOCKS BENEFIT FROM PEACE RALLY

The hope for peace triggered significant price gains across many sectors. Banking stocks, which are particularly sensitive to economic cycles and interest rates, were notably buoyant. Within the Dax, Deutsche Bank and Commerzbank were among the strongest performers, rising 6.2 percent and 4.5 percent, respectively. The European banking index traded as much as 4.2 percent higher, reaching its highest level since early February. Financial stocks benefited from receding recession fears, and the yield curve is also improving, according to one trader. On Thursday, the ECB raised key interest rates for the first time in nearly three years, from 2.0 to 2.25 percent. It is the first major central bank to tighten monetary policy in response to the oil price spike resulting from the Iran war. Bundesbank President Joachim Nagel considers a further rate hike in July possible. The euro traded slightly higher at $1.1589.

Travel and tourism stocks were also in demand due to falling energy prices. In the MDax, TUI and Lufthansa shares each advanced by more than 8 percent. Shares of British Airways parent IAG and Air France-KLM gained 6.8 percent and 9.7 percent, respectively. In the Dax, aircraft manufacturer Airbus and engine maker MTU each rose by more than 4 percent.

DEFENSE AND ENERGY STOCKS UNDER PRESSURE

In contrast, defense stocks lagged behind. Hensoldt, TKMS, Renk, and Rheinmetall lost between 3.2 and 1.6 percent at their lows. Energy stocks also took a hit, suffering from the slump in oil prices. Shares of BP, TotalEnergies, and Shell fell between 5.1 and 3.6 percent. The European sector index declined by 3 percent.

In the afternoon, the focus of many investors is expected to shift to the long-awaited IPO of SpaceX. The aerospace company owned by billionaire Elon Musk is debuting on the U.S. Nasdaq exchange with an issuance volume of $75bn, making it the largest IPO of all time. At an issue price of $135 per share, SpaceX is valued at $1.75 trillion. Musk has reserved an unusually large portion of 30 percent of the 555.6m shares offered for retail investors, among whom he has a massive following. The performance of SpaceX stock is a litmus test for the entire equity market, said Andreas Lipkow, chief market analyst at CMC Markets.

(Reported by: Daniela Pegna, edited by Ralf Banser. For inquiries, please contact our editorial office at berlin.newsroom@thomsonreuters.com (for politics and economics) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)