Europe midday: Stocks surge as oil prices sink, German sentiment rises

(Sharecast News) - European markets were a sea of green on Monday morning as oil prices retreated on the back of an agreement between the US and Iran to pause their attacks, easing the geopolitical risk that has dampened sentiment in recent weeks.

The benchmark Stoxx 600 index was 0.9% higher by lunchtime, bolstered by strong gains in Frankfurt (+1.7%) and Madrid (+1.6%) in particular.

Oil prices dived after US President Donald Trump paused his latest campaign of attacks on Iranian targets and Tehran stopped what it called "retaliatory" strikes. The news eased fears of an immediate escalation that had threatened to disrupt Middle Eastern supply routes.

Brent fell 6.4% to $85.79 a barrel, with markets cautiously welcoming signs that mediation efforts were gaining traction even as fighting continued in pockets across the region.

The ceasefire agreement, announced late on Sunday, includes a temporary halt to crossborder strikes and guarantees for commercial shipping through the Strait of Hormuz - a corridor that handles around a fifth of global crude flows.

Washington framed the pause as a step toward broader talks, but officials stressed that Iran must rein in allied militias operating in Yemen, Iraq and Syria.

"A thumping drop in the price of oil, all the way back to $90 a barrel, is helping get global stock markets off to a good start to the week, as the US and Iran pause hostilities once more amid efforts from Oman to broker a deal over the vexed issue of shipping passage through the Strait of Hormuz," said AJ Bell investment director Russ Mould.

"Brent crude had got back to $100 a barrel late last week, as Washington and Tehran exchanged fresh military strikes, but the Omani initiative gives investors fresh hope that a lasting agreement between America and Iran is within reach. Ever since the initial peace deal on 8 April, markets' core view has been that military escalation had ended, with the result that de-escalation was next and a settlement the ultimate conclusion," Mould said.

In economic news, the IFO's German business climate index rose 86.6 points in July, up from 85.7 points in June, with forward-looking sentiment picking up significantly. This was the third straight monthly improvement and the highest reading since February, coming in ahead of the 86 level expected by analysts.

In equity news, London's Vodafone gained after a strong first-quarter performance that led the telecoms operator to forecast annual earnings at the upper end of its �13bn - 13.3bn guidance range.

Volkswagen Group edged lower after subsidiary Audi lowered its full-year sales and profit outlook following a challenging first half. Full-year revenues are now expected to be between �58bn-63bn, while the operating margin is projected to be 5-7%, down from earlier guidance of �63bn-68bn and 6-8%, respectively.

Meanwhile, travel stocks across the continent were performing well as oil prices dropped, including IAG, easyJet, Deutsche Lufthansa and Air France-KLM.

In contrast, energy majors BP, Shell, Repsol, TotalEnergies and Eni SpA were all tracking crude lower.