European equities moved higher on Wednesday as investors responded to signs that the latest Middle East crisis may be edging towards a more diplomatic phase. The immediate market effect was visible in energy prices, with crude retreating as reports circulated that mediators were trying to arrange contact between the United States and Iran. That move in oil helped improve sentiment across regional markets and gave investors a reason to look again at sectors that had been overshadowed by supply shock concerns.
By midday in Europe, the Stoxx 600 was firmly higher, with Germany’s DAX, France’s CAC 40 and the UK’s FTSE 100 also advancing. The broad move suggested that investors were reassessing regional risk as the possibility of further escalation appeared, at least for the moment, to become less immediate.
That matters because the recent geopolitical backdrop has not only been a foreign policy issue for investors. It has also fed directly into assumptions on inflation, margins, consumer demand and central bank flexibility. Lower oil prices do not solve those concerns outright, but they do reduce one of the most obvious near-term pressures on European assets. In practical terms, a retreat in crude offers some relief for businesses exposed to transport, logistics and household spending, while also taking some heat out of the inflation debate that has been hanging over the region.
JPMorgan European Discovery Trust plc is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
