(Sharecast News) - European equities rallied on Tuesday as investors bet on a potential resumption of US-Iran peace talks, even as Washington moved ahead with a blockade of Iranian ports in the Strait of Hormuz, further tightening global oil supply.
As Axel Rudolph, chief technical analyst at IG, said: "Stocks rally - with some indices like the S&P 500 trading at pre-war levels - as the price of oil falls towards $95 amid hopes of further US-Iran talks ".
The pan-European Stoxx 600 rose 0.95% to 619.74, with Germany's DAX gaining 1.23% to 24,034.29 and France's CAC 40 advancing 1.12% to 8,327.86.
London's FTSE 100 lagged but still edged 0.25% higher to 10,609.06.
"It might be wishful thinking, and investors could feasibly do an about turn tomorrow, but looking at London markets today it's clear just the whiff of a potential peace deal between the US and Iran has been enough to shift sentiment," said Danni Hewson, AJ Bell's head of financial analysis.
Oil prices fell sharply despite the escalating disruption, with Brent crude futures last down 4.19% on ICE at $95.20 a barrel, and the NYMEX quote for West Texas Intermediate declining 6.81% to $92.33, as markets weighed weaker demand prospects against constrained supply.
Rudolph said: "Crude prices fell below $96 per barrel as markets reacted to signs that the US and Iran may resume negotiations, easing some immediate supply concerns following Washington's blockade of the Strait of Hormuz.
"Talks are reportedly being arranged ahead of the expiry of the two-week ceasefire, although previous discussions failed to reach agreement.
"Despite the pullback in oil, the broader outlook remains uncertain, with the IEA warning the conflict could wipe out global oil demand growth this year - marking the first annual decline since the pandemic - while ongoing damage to energy infrastructure and restricted shipping continue to weigh on supply."
The International Energy Agency warned of "the largest disruption in history" to oil markets, cutting its 2026 demand outlook to a decline of 80,000 barrels per day, compared with a previous forecast for growth of 640,000 daily barrels.
It also projected a steep 1.5 million barrels-per-day drop in demand for the second quarter, the sharpest contraction since the Covid-19 pandemic, citing reduced consumption across the Middle East and Asia-Pacific and warning that "demand destruction" could spread as high prices persist.
UK retail sales rise in March, US producer prices top expectations
In economic news, UK retail sales provided a brighter note, with total sales rising 3.6% year-on-year in the five weeks to 4 April, according to the BRC-KPMG monitor, up from 1.1% growth a year earlier and matching February's pace.
Food sales jumped 6.8%, while non-food sales edged 0.9% higher, with in-store purchases rising 1.4% and online sales increasing just 0.1%, reflecting cautious consumer spending amid ongoing geopolitical uncertainty.
Across the Atlantic, US producer prices rose more than expected in March, with the headline index up 0.5% on the month and 4.0% year-on-year, the fastest annual pace since February 2023.
The increase was driven by an 8.5% jump in energy prices, including a 15.7% surge in gasoline, while core producer prices rose 0.2% on the month and 3.6% annually.
Meanwhile, China's export growth slowed to 2.5% year-on-year in March, a six-month low and well below expectations, as the Middle East conflict weighed on global demand.
Imports surged 27.8%, the strongest increase since November 2021, shrinking the trade surplus to $51.1bn from $213.6bn previously, with exports to the US falling 26.5% and trade with the Middle East also weakening.
Intertek jumps, tobacco firms in the red
In equities, Intertek jumped 12.83% after the testing and inspection group said it was considering a potential split into two businesses.
Givaudan rose 2.68% after reporting stronger-than-expected first-quarter sales growth.
Luxury names were mixed, with LVMH slipping 0.06% after warning the conflict had cut at least one percentage point from global sales, while Christian Dior gained 0.74%.
"Warnings from luxury goods maker LVMH highlight the potential hit to consumer confidence if a resolution to the situation in the Middle East isn't found soon," Hewson said.
"People will put plans on hold, waiting until they feel comfortable to spend rather than save, and that mindset could take time to shift once it's become entrenched."
Tobacco stocks came under pressure, with Imperial Brands falling 7.17% after cautioning that the conflict could disrupt second-half performance, and British American Tobacco declining 2.85% in sympathy.
Reporting by Josh White for Sharecast.com.
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