German investor confidence jumps to 10.5 as Middle East peace hopes rise

German investor sentiment swung positive for the first time in four months as financial markets priced in an end to the Middle East war and lower energy costs.

German investor confidence surged to its first positive reading in four months, with the ZEW indicator jumping to 10.5 in June, as hopes for a US-Iran peace deal fueled expectations of lower energy prices and easing inflation.

"Financial market experts expect the Iran conflict to be nearing an end," Achim Wambach, president of the ZEW Institute, said.

The reading, based on a survey of 190 analysts and investors conducted between June 8 and June 15, beat the consensus estimate of minus 8.0 and marked a sharp reversal from May's minus 10.2. The improvement was broad-based, with expectations brightening for Germany's automotive, chemical and pharmaceutical sectors — all energy-intensive industries exposed to the jump in oil and natural-gas costs triggered by the closure of the Strait of Hormuz.

The rebound matters for Europe's largest economy because cheaper energy would directly boost industrial output and household purchasing power, potentially pulling Germany out of the shallow recession that followed the outbreak of hostilities. The ZEW index remains well below February's 58.3 reading before the war began, showing how much ground the economy has to recover.

Oil prices and the transmission chain

Brent crude fell 1.7 percent to $81.73 a barrel on Tuesday, while West Texas Intermediate dropped 1.9 percent to $79.20, as markets weighed the prospect of resumed supplies through the Strait of Hormuz. The waterway, through which about a fifth of the world's oil passes, has been effectively shut since Iran blockaded it in March, sending energy costs soaring across Europe.

The US and Iran reached a preliminary agreement on Monday to end military operations, with a formal signing ceremony planned for Friday in Geneva. The deal calls for the reopening of the strait and the lifting of blockades, though shipping operators say it could take weeks for tanker traffic to resume fully. Japan's Mitsui OSK Lines told the Financial Times it would not send ships through the strait until the deal proves itself in practice.

ECB rate hike adds headwind

The construction sector was the only industry where expectations retreated, the ZEW survey showed, partly reflecting the European Central Bank's interest-rate increase earlier this month. The ECB raised its deposit rate by 25 basis points to 3.75 percent in June, adding pressure on a sector already grappling with higher borrowing costs and slowing demand.

"It is easy to pick holes in this positive narrative, but, for now, it is the dominant driver of markets and is beginning to show up in the surveys," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note. President Donald Trump has "pulled off the trick of selling an outcome that is objectively worse than before the war as a major victory and a market-resetting event," Vistesen added.

The last time German investor confidence swung this sharply was in February 2022, when Russia's invasion of Ukraine sent the ZEW index plunging from 51.6 to minus 39.3 in a single month. The current recovery, while still fragile, signals that markets see the geopolitical shock receding — a shift that, if sustained, could lift German GDP growth forecasts and reduce pressure on the ECB to keep tightening.

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