London: European stock markets started August on a stronger footing on Monday as hopes for renewed diplomacy between the United States and Iran helped drive oil prices sharply lower, boosting investor sentiment across the region.The pan-European STOXX 600 index rose 0.4% to 651.69 points by 08:50 GMT, with most major regional markets trading in positive territory. Germany's DAX led gains among major European benchmarks, climbing 1.4%.Investor sentiment improved after US President Donald Trump said talks with Iran were expected later in the day, raising hopes that a diplomatic solution could prevent further escalation of the conflict.The prospect of negotiations helped push oil prices down by more than 4%, easing concerns about energy supply disruptions linked to tensions in the Middle East and the Strait of Hormuz.Decline in oil pricesThe decline in oil prices weighed on energy stocks, which fell 1%, but provided a boost to sectors that benefit from lower fuel costs.The travel and leisure sector advanced 1.6%, while automobiles and parts gained 2.2%.Aerospace and defence stocks were among the strongest performers, rising 2.6%, while the luxury goods sector added 1.7%.Daniela Hathorn, Senior Market Analyst at Capital.com, said investors were encouraged by the latest diplomatic developments, although uncertainty remained."For now, it seems like a step in the right direction, but I'm sceptical that this will last," she said."Everyone is waiting to see the latest developments in the Middle East, and that remains the main driver of market momentum."European equities had already posted a positive performance in July, with the STOXX 600 gaining more than 1% despite concerns over the economic impact of the US-Iran conflict.Higher energy pricesHigher energy prices have been a particular concern for Europe, given the region's reliance on imported oil and gas. During the conflict, Brent crude rose above $90 per barrel, adding pressure to inflation and economic growth.Corporate deal activity also remained in focus.Shares in AstraZeneca fell 6%, making the pharmaceutical group the weakest performer on the STOXX 600, after reports of a potential merger involving US drugmaker Bristol Myers Squibb. The broader healthcare sector slipped 0.4%.Meanwhile, Italian cable manufacturer Prysmian declined 2.3% after agreeing to acquire US electrical products company Atkore for $95 per share in cash, valuing the business at approximately $3.8 billion.French energy giant TotalEnergies edged down 0.8% after Shell announced plans to sell its onshore European renewables business to the company as part of the British group’s continued reduction of low-carbon investments.Separately, an article published in the European Central Bank's Economic Bulletin highlighted the economic risks associated with the Iran conflict, noting that eurozone household consumption fell sharply during the early weeks of the war as consumer confidence weakened.Investors will continue to monitor developments in the Middle East closely, with market sentiment likely to remain heavily influenced by diplomatic progress and its potential impact on energy markets.
