The FTSE 100 closed lower on Thursday, dropping 79.05 points or 0.8% to 10,425.96, as renewed hostilities between the US and Iran dampened optimism for a peace deal. The FTSE 250 fell 60.06 points (0.3%) to 23,324.92, while the AIM All-Share edged up slightly to 813.63.
“The optimism which has persisted for much of this week about the prospects for a deal between the US and Iran is being severely tested,” said Russ Mould, investment director at AJ Bell. The latest market volatility followed the most serious clash since an April ceasefire, with the US and Iran trading strikes on Thursday. Kuwait, a US ally, also reported responding to incoming fire, and violence escalated on the Lebanese front after Israel declared much of southern Lebanon a combat zone.
Mid-afternoon, however, renewed hope emerged that a deal could still be reached. Axios reported that US and Iranian negotiators had agreed on a 60-day memorandum of understanding to extend the ceasefire and launch negotiations on Iran’s nuclear programme. The report, citing two US officials and a regional source, said US President Donald Trump had yet to give final approval. “This is an agreement to get everybody to the table. We will work out the details in the negotiations,” one official told Axios.
Brent crude for July delivery traded lower at $94.57 a barrel, down from $96.61 at the London equities close on Wednesday. In European markets, the CAC 40 in Paris fell 0.2% and the DAX 40 in Frankfurt closed down 0.3%. In New York, the Dow Jones Industrial Average was slightly lower, while the S&P 500 rose 0.5% and the Nasdaq Composite firmed 0.6%.
The impact of the Middle East war was reflected in US economic data. The personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, rose 3.8% year-on-year in April, up from 3.5% in March. Core PCE inflation, excluding food and energy, rose 3.3%. Separate data showed the US economy expanded at an annual rate of 1.6% in the first quarter, down from an initial estimate of 2.0%, with consumer spending revised lower amid fallout from the conflict.
The pound traded at $1.3435, up from $1.3429 on Wednesday, while against the euro it eased to €1.1530 from €1.1543. The yield on the US 10-year Treasury narrowed to 4.46% from 4.47%, and the 30-year yield trimmed to 4.99% from 5.00%. Gold rose to $4,479.57 an ounce from $4,439.66.
