Markets Rally and Oil Dips Amid Renewed Middle East Peace Prospects
European stocks climbed on Tuesday, with oil prices declining, as cautious optimism emerged for de-escalation in the Middle East conflict. The FTSE 100 closed up 26.10 points, or 0.3%, at 10,609.06, while the FTSE 250 surged 447.40 points, or 2.0%, to 22,724.29, and the AIM All-Share rose 8.26 points, or 1.1%, to 790.57.
European and US Market Gains
In European equities, the CAC 40 in Paris closed up 1.1%, and the DAX 40 in Frankfurt rose 1.3%. Across the Atlantic, New York markets also posted gains: the Dow Jones Industrial Average was up 0.7%, the S&P 500 advanced 0.9%, and the Nasdaq Composite increased by 1.4%.
David Morrison, senior market analyst at Trade Nation, commented: "Despite the breakdown of peace negotiations between the US and Iran over the weekend, and the US blockade of Iranian ports which began yesterday, there's a general feeling that an end to the war is likely to come sooner rather than later." He added that investors are wary of being under-exposed to risk assets should the conflict end abruptly, as such news could trigger a strong rally.
Oil Price Movements and Sector Impacts
Brent oil traded lower at $96.28 a barrel on Tuesday afternoon, down from $101.95 at the close of London equities on Monday. This slide in oil prices provided a general boost for equities but held back the FTSE 100, where index heavyweights BP and Shell retreated 2.8% and 2.4%, respectively.
Joshua Mahony at Scope Markets noted that rumours of a second summit between the US and Iran are gaining momentum. "The focus on halting Iranian nuclear enrichment centres around timelines, with Iran offering up a five-year period as the US demands 20 years," he said. "Nonetheless, this provides the basis for a negotiated settlement, raising the possibility of a reopening of the Straits of Hormuz in the not too distant future."
Currency and Treasury Yield Shifts
The pound rose to $1.3571 on Tuesday afternoon from $1.3451 on Monday. Against the euro, sterling increased to €1.1503 from €1.1492. The euro stood higher against the US dollar at €1.1799 from €1.1705, while the dollar traded lower against the yen at 158.79 yen compared to 159.73 yen.
In bond markets, the yield on the US 10-year Treasury narrowed to 4.28% from 4.33% on Monday, and the yield on the US 30-year Treasury fell to 4.88% from 4.93%.
IMF Growth Forecast Revisions
Reflecting concerns from the fallout of the Middle East crisis, the International Monetary Fund cut its 2026 global growth projection, warning that the world economy could be "thrown off course" by the war. The global economy is now expected to grow by 3.1% this year, down from a 3.3% forecast in January.
For the UK, the IMF forecast growth of 0.8% in 2026, improving to 1.3% in 2027. This marks a downgrade from January predictions of 1.3% growth in 2026 and 1.5% in 2027.
Notable Stock Movements in London
On the FTSE 100, falls in tobacco companies Imperial Brands and British American Tobacco, down 4.8% and 2.9% respectively, also weighed on the index. Imperial Brands slumped after an underwhelming trading update left investors disappointed, as it left guidance unchanged.
Russ Mould, investment director at AJ Bell, noted: "Analysts seem disappointed with the first-half trading update, thanks to concerns over market share loss and currency movements, even if Imperial Brands is sticking to its profit guidance for the full year to September."
Intertek led the risers, soaring 13%, after announcing a strategic review and considering selling its Energy & Infrastructure business. Analysts at RBC Capital Markets remarked that a "for sale sign has essentially been hoisted up over the business."
On the FTSE 250, Oxford Instruments shares rose 5.4% as it expects a "resilient" full-year performance, boosted by an uptick in orders. The company anticipates order intake for the financial year to March to rise about 8% on an organic constant currency basis.
Commodities and Market Leaders
Gold traded at $4,806.75 an ounce on Tuesday, up from $4,714.40 on Monday. The biggest risers on the FTSE 100 were Intertek, Metlen Energy & Metals, Fresnillo, Convatec, and Rentokil Initial. The biggest fallers included Imperial Brands, Tesco, British American Tobacco, Shell, and BP.
Upcoming Economic Events
Wednesday's global economic calendar features eurozone industrial production data and the Federal Reserve's Beige Book. Trading statements are expected from housebuilder Barratt Redrow, miner Antofagasta, and recruiter Robert Walters.
