European equities reversed sharp early losses to close higher on Monday, marking one of the most volatile trading sessions in recent years. The shift came after U.S. President Donald Trump indicated he would hold off on military action against Iran’s energy infrastructure, citing "very good" talks with Tehran.
The Stoxx Europe 600 index ended the day up 0.6%, though it retreated from its intraday peak. The pullback followed a report from Iran’s semi-official Fars News Agency, which denied any direct or indirect contact between Iran and Trump and suggested that Iranian threats had caused the U.S. president to back down.
"Until the duration and scope of the Iran conflict become clearer, equity markets are likely to remain news-driven and vulnerable to sharp intraday reversals," said Altaf Kassam, Head of European Investment Strategy and Research at State Street Investment Management.
Following Trump’s remarks, sectors such as airlines, luxury goods, banking, and semiconductors rebounded strongly, while energy stocks fell alongside a drop in oil prices. Brent crude futures declined by 10%.
Earlier on Monday, European markets had fallen by as much as 2.5% after Iran launched strikes on targets in the Persian Gulf region. This occurred just hours before a deadline set by Trump for Iran to reopen the Strait of Hormuz. The intraday swing from the session’s low to high—a range of 4.5%—was the largest since 2020.
However, David Kruk, Head of Trading at La Financiere de l’Echiquier in Paris, noted that the trading pattern reflected a lack of strong conviction among investors.
"Short positions were covered on the headlines, but there was no follow-through buying from long-only investors," Kruk said. "What the market really wants to see is cooler oil prices—that’s the foundation for everything."
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