FTSE 100 slumps as US strikes test peace optimism

The FTSE 100 closed lower amid renewed tensions between the US and Iran, which cast doubt on recent optimism about a potential peace deal. The index fell by 79.05 points, or 0.8%, to 10,425.96, while the FTSE 250 dropped 0.3%. The market reaction followed fresh exchanges of strikes between the US and Iran, marking the most serious clash since an April ceasefire. The conflict also involved Kuwait, responding to incoming fire, and coincided with escalating violence in southern Lebanon after Israel declared the area a combat zone. The latest hostilities have challenged hopes for a near-term agreement that could ease tensions in the strategically vital Strait of Hormuz and reduce pressure on the global economy. Despite the volatility, there was renewed hope mid-afternoon when reports emerged that US and Iranian negotiators had agreed on a 60-day memorandum of understanding to extend the ceasefire and begin talks on Iran’s nuclear program. However, the deal remains subject to final approval from US President Donald Trump. Officials emphasized that the agreement is intended to bring all parties back to the negotiating table rather than finalize a comprehensive settlement. The geopolitical uncertainty also influenced global markets and commodity prices. Brent crude oil prices fell from $96.61 to $94.57 per barrel, reflecting mixed investor sentiment amid ongoing conflict risks. European stock markets mirrored the cautious mood, with France’s CAC 40 and Germany’s DAX 40 both closing lower. In contrast, US indices showed mixed performance, with the S&P 500 and Nasdaq posting modest gains while the Dow Jones edged down slightly. Economic data underscored the broader impact of the Middle East tensions. The US personal consumption expenditures (PCE) price index, a key inflation measure, rose 3.8% year-on-year in April, up from 3.5% in March, signaling persistent inflationary pressures. Core PCE inflation, excluding food and energy, increased by 3.3%. Additionally, US GDP growth for the first quarter was revised downward, reflecting weaker investment and consumer spending, partly attributed to the fallout from the ongoing conflict.