Europe close: Stocks higher on fresh hopes for US-Iran deal

(Sharecast News) - European shares closed higher on Friday as investors assessed German economic data and the latest developments in the US-Iran war, while oil prices also edged up.

The pan-European Stoxx 600 rose 0.73% to 625.12.

Germany's DAX gained 1.15% to 24,888.56, France's CAC 40 advanced 0.37% to 8,115.75, and London's FTSE 100 added 0.22% to 10,466.26.

In commodities, Brent crude futures were last up 0.64% on ICE at $103.24 per barrel, while the NYMEX quote for West Texas Intermediate gained 0.34% to $96.68.

Chris Beauchamp, chief market analyst at IG, said US consumers were becoming increasingly worried, contrasting with record highs for American indices.

"Stock markets have continued to drift higher, as we enter the final weeks of a very strong US earnings season," he said.

"Signs of the rally broadening out beyond tech are the vital next step for the market to retain its bullish outlook, and Dow's record high ticks that box nicely given tech's lower weighting in the iconic index.

"A long weekend in for the NYSE and FTSE means we have some trimming of risk, but this month has hardly been filled with the 'sell in May' moves some might have expected."

German economy grows in first quarter

On the economic front, Germany's economy grew 0.3% in the first quarter of 2026 compared with the previous three months, confirming an earlier flash estimate.

Consumer sentiment also improved heading into June, with the GfK/Nuremberg Institute for Market Decisions index rising to -29.8 from a revised -33.1 in May.

Rolf Buerkl, NIM's head of consumer climate, said the consumer climate had "at least for the moment" ended its downward trend.

Income expectations recovered to -13.0 from -24.4, although Buerkl said the negative impact of the Middle East conflict remained visible.

German business sentiment also unexpectedly improved in May.

The Ifo business climate index rose to 84.9 from 84.5 in April, beating expectations for a decline to 84.2.

The current situation index rose to 86.1 from 85.4, while the expectations index edged up to 83.8 from 83.5.

Ifo president Clemens Fuest said: "The German economy is stabilising for the time being, although the situation remains fragile."

ING's Carsten Brzeski said the uptick was "no cause for relief", noting that the absolute level of the index remained weak.

In the UK, public borrowing came in higher than expected.

The Office for National Statistics said borrowing rose to £24.3bn in April, up £4.9bn from a year earlier and £3.4bn above the Office for Budget Responsibility's forecast.

ONS chief economist Grant Fitzner said higher receipts were more than offset by increased spending on benefits and other costs.

Debt interest payable rose by £0.9bn to £10.3bn.

Nabil Taleb, economist at PwC UK, said higher debt servicing costs left the public finances more exposed to shocks.

He said the public finances remained "finely balanced", with gilt yields rising as markets weighed the Middle East conflict alongside domestic political uncertainty.

UK retail sales fell more sharply than expected in April, as motorists conserved fuel amid rising prices.

Retail sales volumes declined 1.3%, the worst monthly fall since May 2025 and steeper than expectations for a 0.6% drop.

Automotive fuel sales slumped 10.2%, the largest monthly fall since November 2020, after motorists stocked up in March following the outbreak of conflict in the Middle East.

Harvir Dhillon, economist at the British Retail Consortium, said concerns over the Middle East conflict and its impact on living costs were leading shoppers to rein in spending.

He warned that discretionary spending was likely to fall further as the cost-of-living squeeze worsened.

UK consumer confidence unexpectedly improved in May, however, although households remained cautious about major purchases.

The GfK consumer confidence barometer rose two points to -23, better than expectations for a fall to -28.

Expectations for personal finances over the next 12 months improved to -2, while the outlook for the wider economy rose to -38.

However, the major purchase index fell to -20, its lowest level since January 2025.

Neil Bellamy, consumer insights director at GfK, said consumers appeared to be "in a more generous mood in May", but warned that lower-income households remained under pressure.

He said inflation had fallen in April, but with price pressures expected to rise again and uncertainty around interest rates continuing, May was unlikely to mark the start of a sustained improvement.

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Reporting by Josh White for Sharecast.com.