European shares rebound on hopes of middle east de-escalation

European shares jump as hopes of de-escalation spark relief rally

By Pranav Kashyap and Avinash P

Market Reaction to Middle East Developments

March 10 (Reuters) - European shares rebounded on Tuesday after U.S. President Donald Trump said the war in the Middle East could come to a swift end, lifting investor sentiment and sparking a broad-based rally across regional markets.

Regional Index Performance

The pan-European STOXX 600 index rose 2.3% to 608.57 points by 0940 GMT, bouncing back after closing at its weakest level in more than two months.

Frankfurt and Paris climbed 2.7% and 2.1%, respectively, with both benchmarks on track for their biggest daily rise since May. Madrid, Milan and London advanced 3.2%, 2.8% and 1.8%, respectively, and were headed for their strongest daily performances since April.

Sector Movements

Financial stocks, which had borne the brunt of the recent selloff, staged a strong comeback and provided the biggest boost to the benchmark index, with the sector jumping 4.4%. Energy shares, however, fell 0.7% as oil prices tumbled.

Travel and leisure stocks, also among the sectors hardest hit during the recent escalation in conflict, roared back with a 3.5% gain.

Geopolitical Context and Oil Prices

Trump on Monday said the conflict with Iran could be over soon.

Iran-U.S. Tensions

Iran's Revolutionary Guards said they would not allow "one litre of oil" to be shipped from the Middle East if U.S. and Israeli attacks continue, prompting Trump to warn that the U.S. would hit Iran much harder if it blocked exports from the vital energy-producing region.

Oil Price Volatility

Oil prices swung wildly after Monday's gains, falling as much as 11% to below $90 a barrel. Europe, which relies heavily on imported oil, remains particularly vulnerable to another inflationary shock from elevated crude prices at a time when economic growth is already proving sticky and fragile.

Central Bank Outlook

European Central Bank policymakers have recently warned that a prolonged conflict could push up living costs, while extreme volatility in energy markets risks clouding the outlook for interest rates. Investors are now pricing in at least one ECB rate hike by the end of the year, according to LSEG data.

Expert Commentary

"In the escalation scenario, the ECB could think to hike once in the short term," said Michele Morganti, equity strategist and head of insurance at Generali Investments.

"The risks continue to be high, and Europe has much to lose from the energy ... and growth point of view."

Upcoming ECB Statements

Investors are awaiting comments later in the day from European Central Bank President Christine Lagarde and Vice-President Luis de Guindos for further clues on the policy outlook.

Individual Stock Movers

Among individual moves, Volkswagen shares climbed 3.2% as the German auto group forecast a margin recovery after a tough 2025.

Persimmon jumped 8.2% after the homebuilder beat expectations for fiscal year 2025 revenue and adjusted pretax profit.

Hugo Boss reported a higher-than-expected annual operating profit while also confirming its full-year outlook for 2026, sending its shares up 5.3%.

(Reporting by Avinash P in Bengaluru; Editing by Mrigank Dhaniwala and Maju Samuel)