European markets experienced a volatile start to the week, rebounding sharply on Monday only to face renewed caution on Tuesday. The initial recovery was driven by easing geopolitical tensions after US President Donald Trump announced a postponement of strikes on Iranian energy infrastructure following what he termed "productive" conversations. This news lifted investor sentiment, snapping a three-day losing streak for European equities.
The pan-European STOXX 600 index rose nearly 0.6% to 576.78 on Monday, recovering from an intraday drop of as much as 2.5%. Major regional indices followed suit, with Germany's DAX and Spain's IBEX 35 both gaining over 1%. Sector-wise, miners, financials, and travel stocks saw gains between 2.5% and 2.6%. However, energy stocks fell 1.7%, weighed down by a sharp 9% decline in Brent crude oil prices.
Despite the rebound, underlying concerns persisted. The STOXX 600 remains down approximately 9% from its February peak, hovering near correction territory. Investors also tempered expectations for interest rate hikes from the European Central Bank amid lingering worries about inflation and economic growth.
The optimism proved short-lived as markets opened mixed on Tuesday. Major indices, including the UK's FTSE 100, Germany's DAX, and France's CAC 40, all opened roughly 0.3% to 0.5% lower. This reflected a broad pullback and reassessment by traders, indicating that recent rallies lacked strong conviction. Analysts noted the market is characterized by defensive positioning and elevated volatility, with indices recording wide intraday swings.
Concurrently, significant political and trade developments unfolded in Europe. In Italy, Prime Minister Giorgia Meloni conceded defeat after voters rejected a proposed judicial reform in a national referendum. Preliminary results showed around 55% voted against the overhaul, with a turnout nearing 59%. The proposal aimed to separate career paths for judges and prosecutors and create new oversight bodies, but opponents argued it threatened judicial independence.
On the trade front, the European Commission confirmed it will proceed with the provisional implementation of the Mercosur trade agreement starting May 1, despite ongoing legal challenges. The deal, covering Argentina, Brazil, Paraguay, and Uruguay, creates a free-trade area of over 700 million people. EU Executive Vice-President Maroš Šefčovič stated the priority is "turning this EU-Mercosur agreement into concrete outcomes."
Separately, the United States intensified pressure on the European Union to relax impending methane emission regulations on energy imports. US Ambassador to the EU Andrew Puzder warned of potential "severe energy crisis" if stricter rules complicate LNG imports, highlighting supply concerns amid disruptions linked to the Iran conflict.
