European stocks climb 1.8% as oil retreat eases inflation fears

European stocks closed sharply higher on June 12, with the DAX rising 1.66% to 24,610, as a slide in oil prices eased inflation concerns across the region.

"Less bad news flow is good enough, in our view," said Max Kettner, chief multi-asset strategist at HSBC Global Investment Research, which reaffirmed its maximum overweight stance on global equities on June 8.

France's CAC 40 gained 1.80%, Italy's FTSE MIB added 1.81% and the UK's FTSE 100 rose 1.53%. The Italian banking sector index surged 3.66%, the strongest sector-level move across the region, as lower energy costs boosted expectations for margin stability. Germany's DAX closed at 24,610.46, its highest level in the session.

The broad-based advance brings European equities closer to pre-escalation levels, with HSBC maintaining maximum overweight on European banks specifically. The next catalyst for the region is the ECB's upcoming policy meeting, where rate expectations will shape sector rotation.

The rally extended a global equity rebound that began on June 11, when the S&P 500 rose 1.75% after President Trump signaled progress toward de-escalation in the Middle East. Oil corrected on the same news, easing the energy-driven inflation that had pressured risk assets throughout the month. European markets, which had lagged the US rally in recent weeks, caught up as the oil slide directly benefits the region's energy-importing economies.

HSBC's Kettner has argued that the risks dominating investor conversations — tariffs, the Iran conflict, inflation, and slowing growth — have been visible for months and are largely priced in. The bank holds maximum overweight positions in European banks, emerging market Asia, and Japanese equities, while maintaining an overweight on US stocks. The positioning reflects a view that non-US markets, which have lagged the AI-driven US rally, offer better value at current prices.

The Italian banking sector's 3.66% surge stood out as the session's defining sector move. Italian lenders, which are more sensitive to sovereign bond spreads and ECB rate policy, benefited from the improved macro backdrop. The broader European banking sector also gained, though at a more modest pace, as lower oil prices reduced input costs across the economy and supported consumer spending.

Kettner's June 8 note explicitly pushed back against what he called growing calls for investor complacency as credit spreads and stock prices approach pre-escalation levels. The note came the same week Goldman Sachs removed its 2026 Fed rate cut calls and the Nasdaq fell 5% on the May jobs report, showing the divergence in Wall Street's reading of the same data.

This article is for informational purposes only and does not constitute investment advice.