US-Iran Peace Deal Fuels European Equities, Depresses Oil Prices

European stock markets surged to a new record high following news of a US-Iran peace deal, driving a broad rally across the continent. The pan-European Stoxx 600 index advanced by 0.9% to 639 points, surpassing its previous peak observed prior to the recent escalation of tensions. Major bourses in London, Frankfurt, Paris, Madrid, and Milan all recorded gains. This market reaction reflects a significant reduction in geopolitical risk premium that had weighed on investor sentiment. A key driver of this shift is the anticipated reopening of the Strait of Hormuz, a critical maritime chokepoint for global oil shipments. Consequently, crude oil prices experienced a sharp decline, reaching a three-month low. The resolution of US-Iran tensions and the associated fall in energy prices are expected to alleviate inflationary pressures that have been a concern for central banks and bond markets. Energy costs have historically served as a direct conduit for Middle East instability to impact inflation, bond yields, and overall equity sentiment. A sustained effort to further reduce oil prices is likely to follow the finalization of this agreement, potentially easing broader economic headwinds.