European shares close higher on US-Iran talks; UK's Starmer resigns

European shares rose 0.6% on Monday, driven by British banks and hopes for a more stable UK government under potential new leader Andy Burnham.

​European shares edged higher on Monday as investors assessed the latest round of U.S.-Iran negotiations for signs of progress towards a resumption of shipping through the Strait of Hormuz and the resignation of ‌British Prime Minister Keir Starmer. The pan-European STOXX 600 index closed 0.6% up after two sessions of declines.

British banks advanced, with Barclays, NatWest and Standard Chartered up 3.9%, 4% and 1.3% respectively. The broader banking index rose by 1.4%. Starmer's resignation announcement on Monday paves the way for what is expected ‌to be an orderly transfer of power to Labour Party frontrunner Andy Burnham, who could become Britain's seventh leader in 10 years ‌as early as next month. "Recent weakening of Labour's hold over the electorate has negatively affected the perception of the UK as a place to invest," said Morningstar equities strategist Michael Field.

"The potential election of a popular candidate like Andy Burnham would likely improve market perception." Meanwhile, Washington and Tehran have agreed on a roadmap for a final ⁠peace ​deal and measures to safeguard shipping ⁠through the Strait of Hormuz, mediators Qatar and Pakistan said, sending Brent crude oil down 2% to less than $80 a barrel. However, uncertainty lingered as Tehran had declared the waterway ⁠closed on Sunday, citing no end to fighting between Israel and Lebanon.

"There is still a little bit of uncertainty with regard to what the picture ​is with the Strait of Hormuz. There do appear to be some vessels passing through, which is keeping equities supported," said Fiona ⁠Cincotta at City Index. The benchmark STOXX index hit a record high last week on optimism over Middle East peace talks. However, hawkish projections from the U.S. Federal Reserve ⁠were ​a reminder that inflation concerns and higher energy costs are likely to linger. European Central Bank President Christine Lagarde said the inflation shock in Europe was not large enough to push up longer-term price bets, even as markets price in another quarter-point increase to interest rates this ⁠year, LSEG-compiled data showed.

Tech stocks rose 0.5%, with chipmaker Infineon gaining 4.8%, tracking advances in Asian equities. Budget airline easyJet rose 2.8% after U.S. ⁠investment company Castlelake went public with a £4.74 ⁠billion ($6.26 billion) offer. British defence and engineering group Babcock dropped 5.9% after a sharp decline in its annual profit on a £140 million charge on its Royal Navy Type 31 frigate programme owing to higher than expected ‌rework costs.