European shares edged higher on Tuesday, following up on the previous session's rally sparked by a preliminary agreement between the U.S. and Iran that could allow a resumption of oil flows through the Strait of Hormuz.
Oil prices declined, a positive for the oil-import-dependent continent, with Brent Crude trading near $82 a barrel, easing some concerns over inflation that had pushed expectations of further monetary tightening.
"Europe will become very attractive because lower interest rates and lower oil prices are just going to make their companies more profitable," said Kathleen Brooks, research director at brokerage XTB.
The pan-European STOXX 600 index (.STOXX) rose 0.59% to 638.19 points by 0834 GMT, after closing at a record high on Monday. The index has gained around 8% so far this year compared to the S&P 500's (.SPX), the U.S. stock benchmark, 10.5% advance.
Sectors that are expected to fare better during times of economic certainty did well in Europe on Tuesday. Industrial goods & services (.SXNP) led sectoral gains with a 1.5% advance, while banks (.SX7E) and defence stocks (.SXPARO) added over 1% and 2%, respectively.
Beneath the surface, a broad range of sectors remain below pre-conflict levels, indicating greater scope for a second phase of the recovery, characterised by greater rotation and market broadening, said Citigroup equity strategists in a note on Tuesday.
In deal-making news, UniCredit (CRDI.MI) gained 3.2% after Germany rejected the Italian lender's offer to buy Commerzbank (CBKG.DE) shares, citing low price and support for an independent Commerzbank. Commerzbank's shares were up 1.2%.
Investors were also monitoring chipmakers tapping into debt markets to fund their AI strategies. Concerns that tech companies were increasingly relying on debt funding have sparked selloffs globally several times since last year.
STMicroelectronics (STMPA.PA) fell 2.1% after announcing plans to issue convertible bonds worth $1.5 billion. U.S.-based AI bellwether Nvidia (NVDA.O) also unveiled a major debt offering.
On the macro front, traders are pricing in another hike by the European Central Bank by year-end, according to LSEG-compiled data, after it lifted interest rates by 25 basis points last week to combat price pressures.
The Bank of Japan raised borrowing costs to a 31-year high on Tuesday to counter price pressures linked to energy.
Rate decisions by the U.S. Federal Reserve and the Bank of England later this week are also on the radar.
Among other stocks, Rathbones (RAT.L) plunged 16.8% to a one-year low after the wealth manager said it will pause onboarding new clients for 12 months.
