European Stocks Edge Higher as Diplomacy Hopes Offset Ongoing Tensions

European stock markets opened higher on Friday, following gains in U.S. equities after Benjamin Netanyahu signaled a willingness to engage in talks with Lebanon.

The pan-European Stoxx 600 rose 0.2%, Germany’s DAX gained 0.4%, the U.K.’s FTSE 100 added 0.1%, while France’s CAC 40 was largely unchanged.

Investor sentiment was supported by cautious optimism that diplomatic efforts could help extend the fragile U.S.-Iran ceasefire ahead of potential talks this weekend. However, uncertainty remains elevated. Iran warned it would not attend negotiations in Pakistan if Israeli strikes against Hezbollah in Lebanon continue.

Israeli forces reportedly carried out additional strikes on Friday, while Benjamin Netanyahu clarified that there is currently “no ceasefire” in Lebanon, underscoring ongoing regional tensions.

Meanwhile, disruptions in the Strait of Hormuz continue to impact global markets. Shipping volumes through the key oil transit route remain below 10% of normal levels, significantly constraining supply. Iran has also imposed tighter controls, requiring vessels to pass through its territorial waters.

The implications are global. Many Asian economies depend heavily on crude shipments through the strait, while Europe relies on natural gas from Persian Gulf countries—some of which have been affected by recent Iranian actions.

Further tightening supply, attacks on Saudi energy infrastructure have reduced oil output capacity by around 600,000 barrels per day and cut flows through the East-West Pipeline by roughly 700,000 barrels per day.

Oil prices moved higher as a result, with Brent crude rising 1.4% to $97.24 per barrel and U.S. West Texas Intermediate (WTI) also gaining 1.4% to $99.25. Despite the rebound, oil remains on track for its steepest weekly decline since mid-2025.

Rising energy costs are increasing concerns about inflation, complicating the outlook for central banks such as the European Central Bank. Bond markets have been volatile as investors reassess the likely path of interest rates.

Attention now turns to upcoming U.S. inflation data, which is expected to provide further insight into how energy price shocks are feeding into consumer prices.

In corporate news, Sodexo cut its annual sales and profit forecasts, while AO World expects earnings to come in at the top end of its guidance range.