European stock markets continued their upward trend, buoyed by expectations that weekend talks between the U.S. and Iran would solidify a ceasefire in the Middle East, alongside signs of progress toward a potential peace agreement for Ukraine. The Stoxx Europe 600 index closed 0.4% higher after a key Ukrainian negotiator involved in talks with Russia indicated that advances were being made toward a possible peace deal with the Kremlin. Leading the gains was Austrian banking group Erste Group Bank, which has a Russian subsidiary, rising 11%. However, defense stocks declined, with the Bloomberg Europe Defense Select Index falling 2.7% and Rheinmetall dropping 5.6%.

On a weekly basis, the Stoxx Europe 600 index advanced 3.1%, marking its third consecutive week of gains. The rally, initially fueled by news of the U.S.-Iran ceasefire, continued as Israeli Prime Minister Netanyahu agreed to hold direct talks with Lebanon, focusing on disarming Hezbollah.

"Investor sentiment largely hinges on whether the ceasefire holds and whether shipping traffic through the Strait of Hormuz returns to normal," said Florian Ielpo, Head of Macro Research at Lombard Odier Asset Management.

Meanwhile, concerns surrounding artificial intelligence are intensifying market divergence. The performance gap between two baskets of stocks compiled by UBS—one tracking European-listed AI beneficiaries and the other covering companies deemed vulnerable to disruption—has widened again after narrowing in the early stages of the conflict.