European Stocks Bounce as Trump Quip Stokes Hopes for End to Iran War

Key Takeaways

• Oil prices slid below USD 100 per barrel after President Donald Trump suggested the war in Iran could end “very soon.”
• European stocks climbed, following similar gains in Asia as US stocks remained flat.
• Bond yields also ticked lower on hopes of an improved economic outlook.

European stocks jumped as oil prices slid and global indexes rebounded after US President Donald Trump suggested that the US-Israeli war with Iran could end sooner than previously thought.

The Morningstar Europe Index was up 1.8% by Tuesday’s close, its biggest jump in over 10 months, as oil prices fell back below USD 100 and traders grasped at renewed hope that the war on Iran may come to a swift end. Banking stocks were among the top gainers as markets bet on an improved economic outlook, while travel stocks picked up on an expected easing of airline restrictions and higher fuel costs.

“TACO had to happen and I guess Trump just revealed his pain threshold,” Neil Wilson, investor strategist at Saxo UK, says, referring to the trending Wall Street acronym for “Trump always chickens out.”

“Monday’s events show that the US administration is more sensitive to energy than it seemed. However, oil needs to start flowing again for this dollar reversal to extend,” ING analysts write in a note.

Overnight, Trump made comments to press that the war would end “very soon”, and posted to social media threatening Iran if obstructions in Hormuz Strait shipping continue.

Asian stocks also recovered, with the Morningstar Asia Index up 3.1% at the close in dollar terms, while US stocks were little changed in morning deals. The Morningstar US Market Index dipped 0.3% in morning trade, while the S&P 500 was 0.2% lower and the Nasdaq 100 was flat. So far since the start of hostilities, US equities have markedly outperformed peers in Asia and Europe, where economies are more reliant on energy imports.

Oil prices meanwhile dropped toward USD 90, having surged sharply during the previous session. Brent crude was down 7.5% at USD 92 and West Texas Intermediate crude was 7% lower at USD 88. European gas prices also fell, with the TTF benchmark down 13% to EUR 49, having soared more than 50% since the start of the conflict.

Buoying markets further Tuesday, Saudi Arabia’s Saudi Aramco, the world’s largest oil company by revenue, said on an earnings call that it would be possible to boost exports to 70% of normal levels within days by diverting shipments via Red Sea ports.

Political Signaling Drives Global Markets

Wall Street whipsawed in the previous session after Trump told CBS that “the war is very complete, pretty much” and that he was “thinking about” taking over the Strait of Hormuz – the key global chokepoint for oil and gas supplies.

“We’re achieving major strides toward completing our military objective,” Trump said in a separate press conference Monday evening, in which he suggested that the conflict would end “very soon”. He added that he was focused on “keeping energy and oil flowing to the world.”

Israel’s Prime Minister Benjamin Netanyahu nevertheless said that the campaign against Iran was “not done yet” in comments made before Trump’s speech but released Tuesday.

Bond and Stock Market Volatility Eases

Bond yields ticked lower Tuesday and traders pulled back their bets on interest rates amid easing concerns around inflation and a wider economic fallout from the war.

UK gilt and German bund yields ticked lower, with the UK’s 10-year benchmark down 0.4 percentage points at 4.58% and Germany’s 10-year down 0.1 percentage points at 2.85%.

The US 10-year Treasury yield was flat at 4.13%. The US dollar dipped, with the dollar index, which tracks the USD against a basket of currencies, falling to 98.69. Gold ticked up 0.7% to USD 5,174.

The Cboe Volatility Index, or VIX, dipped below 25, having spiked above 30 for the first time since April’s tariff meltdown on Monday. Saxo’s Wilson nevertheless cautioned that market will remain highly sensitive to developments out of the Middle East over the coming days and week, and that

“It completes a pretty madcap couple of days for the markets,” Saxo’s Wilson says. “But we should note that oil and gas prices, while sharply lower over the last 24 hours, remain higher than before the war. Stocks are still down materially.”

“The risks are still high, just not as elevated as predicted over the weekend,” he adds. “Trump had to do something to calm markets – so this cannot be seen as a sign peace is about to break out – there is a tactical element to these comments, but nevertheless it underlines that the US isn’t going to push this to breaking point.”