Europe's STOXX 600 ends at record high as US-Iran deal lifts sentiment

By Johann M Cherian, Utkarsh Hathi and Purvi Agarwal

June 15 (Reuters) - Europe's STOXX 600 hit a record high on Monday, boosted by a relief rally across most sectors after the United States and Iran reached a preliminary agreement that would open the Strait of Hormuz and end the three-month-long war in the Middle East.

Brent crude prices fell to three-month lows, while the pan-European index closed 0.2% higher, recouping its losses since war began on February 28, after U.S. President Donald Trump, Vice President JD Vance and Iranian parliament speaker Mohammad ​Bagher Qalibaf signed the memorandum of understanding.

The index surpassed its February 27 peak, while the Euro STOXX volatility index hit its lowest since late January.

European shares had broadly underperformed their peers in the U.S. and Asia since March, largely due to the continent's reliance on the Strait of Hormuz for crucial oil supplies and its smaller exposure to AI technology stocks. 

With Monday's gains, the STOXX 600 is now up 7.2% for the year, narrowing its gap with the U.S. benchmark S&P 500 that has risen more than 10%.

"It's probably the time you should see some rotation ... you might be taking gains in some of the AI names that have rallied very hard over the last month or two and could be recycling that into areas like defense in Europe, which have been weak," said Michael Field, chief equity strategist at Morningstar.

BROAD RALLY IN EUROPE

Spain's financials-heavy index led gains among major regional indexes, climbing 1.4% to record highs. Germany's DAX index rose 1.1% to a near two-week high. France's CAC 40 index gained 0.4% to pre-war levels.

Banks were among the biggest boosts to the STOXX 600, adding 1.5% to hit their highest since January 2008. Energy price-sensitive auto stocks gained 2.6%, while airlines such as Lufthansa and Air France jumped 4.5% and 3.4%, respectively.

Still, analysts expect energy costs to remain elevated until flows gradually return to pre-war levels. Concerns over energy-driven inflation led the European Central Bank to hike interest rates by 25 basis points last week.

The yield on eurozone short-term bonds, reflecting interest rate expectations, fell to a two-week low, although traders held onto expectations of another 25-bp ECB rate hike before the end of the year, according to LSEG-compiled data.

"You can feel the palpable relief in Europe. The ECB will be pleased that they don't have to keep talking up a strong game and probably that will outweigh their slight feelings of embarrassment about having to have been bounced into a hike last week," said Chris Beauchamp, chief market analyst at IG Group.

In corporate news, Renault Group gained 3.7% after the carmaker said it would develop a military vehicle in partnership with defence technology company Thales.

AI equipment maker Schneider Electric climbed 1.8% after entering a strategic collaboration with Taiwan's Foxconn to develop and scale infrastructure for AI data centres.

Among laggards, energy stocks fell 3.1%, tracking lower crude oil prices. They also weighed on London's FTSE 100, which closed 0.4% lower. ​

(Reporting by Utkarsh Hathi, Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Janane Venkatraman, Eileen Soreng, Subhranshu Sahu and Alexander Smith)