London’s benchmark index closed marginally higher on Monday, as investors navigated a volatile mix of Middle East escalation and shifting US interest rate expectations.
The FTSE 100 closed up 5.15 points, or 0.1%, at 10,373.20, having earlier dipped as low as 10,319.17 during the session.
The FTSE 250 ended down 47.31 points, or 0.2%, at 23,013.43, while the AIM All-Share fell 0.5% to 793.59.
Oil prices surrendered early strong gains after Iran announced it was ending its latest military operation against Israel following the first exchanges of fire since an April ceasefire.
Iran had fired dozens of missiles at Israel overnight, with Israel responding by targeting military sites inside the Islamic republic, raising fears of a new full-scale conflict.
US President Donald Trump urged both sides to stand down, writing on Truth Social: “Israel and Iran must immediately stop ‘shooting’.”
Trump later added that “final negotiations” towards peace were proceeding “subject to ignorance or stupidity getting in its way.”
Brent crude for August delivery traded at 94.75 dollars a barrel on Monday, up from 93.70 dollars at Friday’s London close but well below earlier highs of close to 98 dollars.
AJ Bell analyst Dan Coatsworth said: “Hopes have been dashed for the two key things investors desperately wanted — an end to the Iran war and interest rates not to go up.”
“The market was taken aback by the robust US jobs data last Friday and that’s once again changed interest rate expectations,” Coatsworth added, noting markets are now pricing in a greater chance of a Federal Reserve rate hike this year.
Friday’s strong US jobs report had already rattled markets by effectively killing hopes for near-term rate cuts and putting rate hikes back on the agenda.
Analysts at Morgan Stanley described Friday’s sell-off as a “correction” that was “inevitable and ultimately healthy if this bull market is going to extend into year-end,” maintaining an 8,000 S&P 500 target.
Goldman Sachs pushed its forecast for the final two US Federal Reserve rate cuts back to June and December 2027, though it continues to view rate hikes as unlikely.
“We think the most natural path for the FOMC is to delay further cuts until the effects of tariffs, the war, and AI demand have faded and core PCE inflation nears 2%,” Goldman said.
In New York, the Dow Jones Industrial Average gained 0.2%, the S&P 500 rose 0.8%, and the Nasdaq Composite climbed 1.5% as US markets partially recovered Friday’s steep losses.
European markets were less resilient, with Paris’s CAC 40 falling 0.2% and Frankfurt’s DAX 40 declining 0.6% by the close.
Higher-for-longer rate fears weighed on London-listed housebuilders, with Barratt Redrow falling 2.4%, Persimmon dipping 2.5%, and Berkeley Group declining 2.8%.
In a bright spot for the FTSE 250, Tate and Lyle surged 15% after recommending a cash acquisition bid from US peer Ingredion, priced at 595 pence per share plus dividends, valuing the company’s equity at £2.7 billion.
Recruiter Hays climbed 4.2% after doubling its share buyback programme to £10 million, while Mpac plunged 20% after warning full-year profit would be “substantially below” market expectations due to delays and pricing pressure.
Podcast producer Audioboom fell 14% after it ended discussions with potential suitors, saying all indicative proposals “undervalue the company and its prospects” despite being offered at a premium to its October 2025 closing price.