Early market roundup: Middle East tension ease supports stocks

Oil moved lower on Monday morning and equities climbed on hope of an easing of Middle East tensions, before traders shift their focus to central bank decisions later this week.

Iran said it had halted retaliatory attacks against Washington's allies in the Middle East, and US ambassador to the United Nations Mike Waltz told "Fox News Sunday" that, while forces remained "locked and loaded", Trump would give negotiations "a little bit of room".

The FTSE 100 index opened 43.72 points higher, 0.4%, at 10,779.95 on Monday. The FTSE 250 added 152.66 points, 0.6%, at 23,954.15, and the AIM all-share added 2.04 points, 0.3%, at 775.02.

The Cboe UK 100 was up 0.4% at 1,072.05, the Cboe UK 250 added 0.6% at 20,858.95, and the Cboe small companies was 0.3% higher at 18,618.58.

In Frankfurt, the DAX 40 surged 1.2%. The CAC 40 was 0.7% higher.

The Brent price was markedly lower, declining to USD91.02 a barrel early Monday from USD95.49 at the time of the London equities close on Friday.

Analysts at Deutsche Bank commented: "The escalating conflict in Iran has paused somewhat. After 13 consecutive nights of US strikes aimed at degrading Iran's ability to threaten commercial shipping, Washington has refrained from further attacks since late Friday, while Tehran has publicly stated that it has also suspended retaliatory operations. The pause falls short of a formal ceasefire, but both sides are presenting it as an opportunity for diplomacy.

"Reports from the New York Times and Axios suggest an active debate within the administration over both the effectiveness and costs of further strikes, with some military officials reportedly arguing that key objectives have largely been achieved. For now, the market is treating the lull as a positive development, although the situation remains highly fluid."

Against the dollar, sterling edged up to USD1.3345 on Monday morning from USD1.3342 at the time of the London equities close on Friday. Versus the euro, it eased to EUR1.1693 from EUR1.1717.

Against the dollar, the euro climbed to USD1.1409 from USD1.1385. The dollar fell to JPY163.41 against the yen from JPY163.70.

But "positioning" ahead of a Federal Reserve rate decision may support the dollar, analysts at ING believe.

"The Fed should keep rates on hold on Wednesday, but Chair Kevin Warsh's opposition to forward guidance may encourage markets to hold dollars as protection against hawkish surprises. The sharp fall in oil prices is supporting EUR/USD, but downside risks remain unless a clear de-escalation path emerges," ING analysts commented.

For sterling, meanwhile, Thursday's Bank of England decision is the "main event".

"Rates should remain on hold, but the focus will be on whether support for tighter policy broadens within the MPC. Catherine Mann may join Huw Pill and Megan Greene in voting for a hike, although we still expect a 7-2 vote in favour of unchanged rates. Higher energy prices remain an upside risk to inflation, but we expect the updated projections to show CPI peaking comfortably below 4%," ING added.

"If inflation is still expected to remain contained, we believe the BoE will leave rates unchanged for the rest of the year. With markets pricing 38bp of tightening by year-end, dovish repricing remains, in our view, the clearest near-term risk for sterling."

The yield on the 10-year US Treasury cooled to 4.64% on Monday from 4.66% at the time of the London equities close on Friday. The 30-year yield eased to 5.13% from 5.14%.

In Tokyo, the Nikkei 225 ended up 0.5%. The Shanghai Composite rose 1.2%, while the Hang Seng index in Hong Kong was also 1.2% higher. Sydney's S&P/ASX 200 surged 1.4%.

Gold traded at USD4,096.97 an ounce on Monday, rising from USD4,078.09 late Friday.

In London, JD Sports was the best FTSE 100 performer, adding 3.8%. The sportswear retailer is now up by around a third over the past three months.

Vodafone added 3.0%. It has made a "good start" to its financial year, with revenue boosted by the consolidation of Three UK. Total revenue in the first quarter to June 30 rose 9.7% to EUR10.29 billion from EUR9.39 billion a year prior, with total service revenue alone up 9.8%,

Adjusted earnings before interest, tax, depreciation, amortisation and after leases rises 6.7% to EUR2.93 billion from EUR2.75 billion a year prior. The top line hike was down to "strong service revenue growth and the consolidation of Three UK, partially offset by foreign exchange movements", the firm said. It announced a deal in May to buyout CK Hutchison's stake in the VodafoneThree joint venture for £4.3 billion.

In June, investee Vodacom sealed the acquisition of an effective 20% stake in Safaricom, taking its stake to 55%. Vodafone now expected an annual adjusted Ebitda after leases between EUR13.0 billion and EUR13.3 billion, its guidance lifted from EUR11.9 billion and EUR12.2 billion. In financial 2026, it amounted to EUR11.4 billion.

CEO Margherita Della Valle said: "Following the completion of the Safaricom transaction, we are updating our guidance range to reflect the contribution from Kenya and Ethiopia. And after our good start to the year, we are expecting to deliver the upper end of the new group ranges."

AstraZeneca, the FTSE 100's second-largest company behind HSBC, added 1.5%. The drugmaker still expects total revenue for 2026 to rise by a mid-to-high single-digit percentage, with core EPS climbing by a low double-digit percentage.

In the second quarter, revenue rose 6.4% to USD15.38 billion from USD14.46 billion. Core operating profit per share in the second quarter climbed 21% on-year to USD2.63, beating consensus of USD2.49.

On the decline, the weaker oil price meant BP was the worst performer, down 3.5%.

Vesuvius slumped 10%. The molten metal flow engineering and technology company expects to report first half trading profit of around £74 million, a slight decline from £77.0 million a year prior.

"We have continued to be impacted by operational issues in our Steel division. Additionally, Advanced Refractories is experiencing a challenging trading environment, particularly in Europe. The operational issues, whilst temporary, are causing a greater impact than previously anticipated. They are being addressed and are expected to be resolved by the end of the year," it warned.

"Accordingly, we now expect full-year trading profit to be slightly ahead of trading profit for FY25 on a constant currency basis."

Trading profit in 2025 amounted to £151.1 million.

Jefferies believes the new outlook implied a "low double-digit cut" to consensus.

Among small-caps, Pinewood and Pharos Energy jumped after agreeing buyouts.

Pinewood motored 32% higher. The software provider for automotive sellers said Friday it would be "minded to recommend" a possible offer by Ridgeview Partners.

The offer is priced at £4.48 per share in cash, valuing Pinewood's entire issued and to be issued ordinary share capital at £545 million.

"The Pinewood.AI board believes that the possible offer represents an attractive opportunity for Pinewood.AI's shareholders to realise an immediate and certain cash value today for their investment at a level which may not be achievable until the execution of the strategy is delivered over the medium to longer term, with that execution subject to a wide range of uncertain potential outcomes," the firm said.

Pharos Energy has agreed to an all-cash takeover offer from Serica Energy that values Pharos at £145.7 million, the two London-listed companies announced on Sunday evening.

The Serica offer of 32.6683 pence per Pharos share is comprised of a cash payment of 28.6683 pence per share from Serica and a 4.0p special dividend paid from Pharos' cash resources.

The new offer for Pharos Energy, which has assets in Vietnam and Egypt, trumps a 28.0p offer from Ratio Petroleum Energy, to which Pharos had already agreed last month. The Ratio offer was 23.0683p per share in cash, plus the same 4.0p special dividend.

Pharos shot up 30% to 32.30p for a £134.4 million market capitalisation. Serica Energy shares fell 2.7%.

In New York on Friday, the Dow Jones Industrial Average added 0.5%, the S&P 500 rose 0.1% and the Nasdaq Composite fell 0.6%. New York stock market futures are solidly higher on Monday.

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