European stock markets advanced on Tuesday, buoyed by a reduction in geopolitical tensions after Iran's latest peace proposal and a subsequent pause in U.S. military action. The Stoxx Europe 600 index rose 0.79%, while Germany's DAX index gained 1.29%.
Investors welcomed the news, with U.S. President Donald Trump stating that a deal to limit Iran's nuclear program was now "very likely." This development contributed to a temporary dip in oil prices by as much as 2%, though they remained above $100 a barrel. Meanwhile, bond markets stabilized following several sessions of significant selling pressure.
As of 08:06 GMT, the pan-European Stoxx 600 index was up 0.8% at 614.83 points, though it remained below pre-war levels. Other major European markets also posted gains: Germany's DAX index increased by 1.1%, and France's CAC 40 index rose 0.8%.
The overall performance of European equities has lagged behind other global markets, primarily due to the region's heavy reliance on oil imports, where ongoing energy concerns continue to weigh on sentiment. In contrast, U.S. and global markets have rebounded, driven by optimism surrounding artificial intelligence.
Additional pressure came from a global bond sell-off, with investor pricing indicating expectations for at least two more interest rate hikes from the European Central Bank before year-end.
Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, commented, "As long as economic growth remains resilient, we expect rising yields not to disrupt the positive market outlook."
"While potential rate hikes may marginally dampen consumer spending, they are unlikely to undermine the long-term government and corporate expenditures that support economic growth and corporate profits."
The rally in AI-related and technology stocks faces a test on Wednesday, as Nvidia, the world's most valuable company, is set to release its quarterly earnings.
Technology indices moved higher. Swedish company Lagercrantz reported better-than-expected fourth-quarter results, with its shares rising 8.2%. Software firms SAP and Dassault Systèmes gained 5.3% and 3.5%, respectively.
The defense sector led the gains, advancing 2.5%. Swedish defense company Saab saw its shares rise 5.3% after Sweden announced plans to spend over $4 billion on naval frigates from France. German firms Hensoldt and Rheinmetall increased by 7% and 4.6%, respectively.
Industrial and banking sectors provided further support to the broader index, rising 1.2% and 0.5%.
Swedish online gambling operator Evolution announced a €2 billion (approximately $2.4 billion) share buyback program, sending its shares soaring 11.2%.
In contrast, French steel tube manufacturer Vallourec plunged 7.8% after ArcelorMittal sold a 10% stake at a discount.
Separately, EU negotiators are expected to agree later in the day to remove import tariffs on U.S. goods, fulfilling a trade agreement and averting the threat of additional tariffs from the Trump administration.
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