Stock markets across Europe and Asia rose strongly on Wednesday as investors reacted to signs that the conflict involving Iran could ease in the coming weeks. Optimism followed remarks by Donald Trump, who said the United States may halt military operations within two to three weeks, regardless of whether a formal agreement is reached.

The improved sentiment lifted major European indices. The Euro Stoxx 50 gained more than 1 percent, while the broader Stoxx 600 climbed about 2.5 percent. In United Kingdom, the FTSE 100 rose around 0.8 percent, while Germany’s DAX and France’s CAC 40 also moved higher. Italy’s FTSE MIB recorded the strongest gains among major European markets, rising roughly 1.7 percent.

The rally followed comments by Trump during a press briefing at the White House on Tuesday, where he said the US would “probably” end attacks on Iran soon. He also indicated that Washington would not be involved in what happens next in the Strait of Hormuz, a key route for global energy shipments.

Oil markets reacted quickly to the prospect of de-escalation, with Brent crude and US West Texas Intermediate futures falling about 4 percent, dropping below $100 per barrel. Lower energy prices provided additional support to equities, which have been under pressure due to rising fuel costs and supply concerns.

Asian markets also posted strong gains. South Korea’s Kospi index surged more than 8 percent, recovering losses seen earlier in the week, while Japan’s Nikkei 225 rose over 2 percent. A survey from Japan’s central bank released on Wednesday showed improving business sentiment among major manufacturers, despite ongoing geopolitical risks.

Elsewhere in the region, Hong Kong’s Hang Seng index climbed more than 2 percent, and China’s Shanghai Composite rose around 1.5 percent. India’s Sensex advanced roughly 2 percent, while Australia’s ASX 200 and Taiwan’s Taiex also recorded gains.

Analysts cautioned that while markets have responded positively, uncertainty remains. “De-escalation hopes have given markets a lift, but the effects of the war are likely to persist even if it ends soon,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics.

US stock futures also moved higher, building on strong gains from the previous session when Wall Street recorded its best day in nearly a year. The S&P 500 rose 2.9 percent, while the Dow Jones Industrial Average gained 2.5 percent and the Nasdaq jumped 3.8 percent.

Investors are now closely watching for further signals from Washington, including an expected address by Trump, as markets weigh whether the current rally can be sustained if geopolitical tensions ease further.

A new analysis by the Brussels-based think tank Bruegel has warned that Europe must urgently adapt its defence strategy as modern warfare shifts in favour of low-cost drones and missiles, exposing vulnerabilities in traditional air defence systems.

The report highlights a growing imbalance in the cost of defence versus attack. Each interceptor missile from systems such as the Patriot air defence platform can cost around $4 million, while drones like those deployed by Iran are often worth only tens of thousands of euros. This gap, analysts say, is placing increasing strain on the stockpiles of countries engaged in sustained conflicts.

According to the report’s authors, Guntram Wolff and Alexandr Burilkov, the widespread use of inexpensive drones and missiles has reshaped the strategic environment. They argue that attackers can now deploy large volumes of relatively cheap weapons, overwhelming even advanced air defence networks.

The findings draw on recent developments in the Middle East, where US and Israeli forces have used large numbers of interceptors to counter drone and missile attacks. Stockpiles are being depleted faster than they can be replenished, raising concerns about long-term sustainability.

While these challenges are evident in the Iran conflict, the report warns that Europe faces a more significant threat from Russia. Unlike Iran, Russia has a more advanced air force and integrated missile defence systems, which could make any future conflict far more intense.

Bruegel suggests that a potential confrontation in Europe could resemble an escalated version of current conflicts, with waves of drones and missiles overwhelming defensive systems. In this context, the experience of Ukraine offers valuable lessons.

Ukraine has been forced to carefully manage its limited supply of interceptors while facing repeated strikes on cities and infrastructure. The situation has also placed pressure on European countries supplying air defence systems to Kyiv, reducing their own reserves.

The report identifies two key priorities for European policymakers. The first is to invest heavily in low-cost interception technologies. Ukrainian firms have already developed cheaper counter-drone systems, which are attracting international interest. Expanding such capabilities could help reduce the financial strain of defending against mass attacks.

The second recommendation is more complex: developing stronger offensive capabilities. Rather than relying solely on defensive systems, Europe should be able to target the production facilities and infrastructure that support enemy drone and missile programmes. Ukrainian long-range strikes inside Russia have demonstrated how such actions can disrupt supply chains and reduce the volume of incoming attacks.

Recent trends suggest growing momentum in this direction. European defence technology startups raised significant funding in 2025 and early 2026, with companies working on more affordable interception systems and advanced strike capabilities.

The report concludes that future conflicts will be defined by scale, speed and cost efficiency. For Europe, adapting to this reality will require a shift away from reliance on expensive defensive systems toward a broader strategy that balances affordability, production capacity and deterrence.