European shares jump as hopes of de-escalation spark relief rally

European shares rebounded on Tuesday after US President Donald Trump said the war in the Middle East could come to a swift end, lifting investor sentiment and sparking a broad-based rally across regional markets, reports Reuters.
The pan-European STOXX 600 index rose 2.3 per cent to 608.57 points by 0940 GMT, bouncing back after closing at its weakest level in more than two months.
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Frankfurt and Paris climbed 2.7 per cent and 2.1 per cent, respectively, with both benchmarks on track for their biggest daily rise since May. Madrid, Milan and London advanced 3.2 per cent, 2.8 per cent and 1.8 per cent, respectively, and were headed for their strongest daily performances since April.
Financial stocks, which had borne the brunt of the recent selloff, staged a strong comeback and provided the biggest boost to the benchmark index, with the sector jumping 4.4 per cent. Energy shares, however, fell 0.7 per cent as oil prices tumbled.
Travel and leisure stocks, also among the sectors hardest hit during the recent escalation in conflict, roared back with a 3.5 per cent gain.
Trump on Monday said the conflict with Iran could be over soon.
Iran's Revolutionary Guards said they would not allow "one litre of oil" to be shipped from the Middle East if US and Israeli attacks continue, prompting Trump to warn that the US would hit Iran much harder if it blocked exports from the vital energy-producing region.
Oil prices swung wildly after Monday's gains, falling as much as 11 per cent to below $90 a barrel. Europe, which ?relies heavily on imported oil, remains particularly vulnerable to another inflationary shock from elevated crude prices at a time when economic growth is already proving sticky and fragile.
European Central Bank policymakers have recently warned that a prolonged conflict could push up living costs, while extreme volatility in energy markets risks clouding the outlook for interest rates. Investors are now pricing in at least one ECB rate ?hike by the end of the year, according to LSEG data.
"In the escalation scenario, the ECB could think to hike once in the short term," said Michele Morganti, equity strategist and head of insurance at Generali Investments.