European stocks rose on Wednesday as comments from both sides of the Middle East war gave some conviction about an end to hostilities any time soon.
“The market seems increasingly optimistic that the end of the war in Iran is in sight, as the big gains in the United States and Asia were matched in Europe,” said AJ Bell investment director Russ Mold.
The FTSE 100 closed up 188.34 points, or 1.9%, to 10,364.79. The FTSE 250 finished up 484.48 points, or 2.3%, at 21,688.19, and the AIM All-Share rose 22.13 points, or 3.1%, to 739.25.
On Wednesday, US President Donald Trump said Iran had called for a ceasefire but that the US would only consider it once the Strait of Hormuz, the vital oil and gas shipping route that Iran has effectively closed to most exports, is clear for shipping.
This came after Trump told reporters on Tuesday that the United States would end its operations in Iran “very soon,” perhaps within “two weeks, maybe three.”
The US president is scheduled to give a televised address later on Wednesday.
Meanwhile, Iranian President Masoud Pezeshkian said the Islamic republic had the “necessary will” to end the war, as long as its enemies guaranteed it would not break out again.
But Israeli Prime Minister Benjamin Netanyahu insisted that Israel will press ahead with its military campaign and that “we will continue to crush the terrorist regime.”
Brent crude oil fell to $101.83 a barrel on Wednesday afternoon, down from $107.38 on Tuesday.
In European equities on Wednesday, the CAC 40 in Paris closed up 2.1%, while the DAX 40 in Frankfurt rose 2.7%.
Stocks in New York rose, extending Tuesday's excellent gains. The Dow Jones Industrial Average rose 0.9%, as did the S&P 500 index, and the Nasdaq Composite gained 1.3%.
Michael Brown, senior research strategist at Pepperstone, noted that amid the “euphoria, exuberance and relief” that has fueled a rebound in risk appetite over the past day, rising energy prices mean that a rise in headline inflation over the coming months is, essentially, “baked in.”
“Furthermore, significantly higher energy prices and continued supply chain disruption are likely to bring significant headwinds to growth, which in turn amounts to a notable negative demand shock, which is likely to weaken what is already very anemic economic momentum, particularly in Europe,” he said.
Brown does not believe that financial markets have “ignored” these risks, but rather are essentially “putting aside these concerns to address them on another day in the future.”
Reflecting these concerns, the Bank of England said the war in the Middle East had caused “a substantial negative supply shock to the global economy”, increasing risks to the financial system.
The central bank said the fallout will also hit economic growth and tighten financial conditions, such as banks tightening lending.
“Adverse impacts on the global macroeconomy increase the likelihood that multiple vulnerabilities crystallize at the same time, amplifying their effect on financial stability,” the Bank said in a quarterly update on identifying financial stability risks.
The bank's governor, Andrew Bailey, tried to curb expectations of interest rate increases.
In an interview with Reuters, Bailey responded to market expectations of higher rates by commenting that “that's a judgment the markets have to make, but I think they're getting ahead of themselves.”
Prime Minister Sir Keir Starmer said the UK could weather the economic storm caused by the conflict with Iran, but acknowledged the crisis “will affect the future of our country” as households now face higher fuel costs and the prospect of increases in energy bills later this year.
The UK is leading a diplomatic initiative to reopen the Strait of Hormuz, but restoring the flow of global trade will not be easy, Sir Keir admitted.
Foreign Secretary Yvette Cooper will host an international meeting on Thursday to “assess all feasible diplomatic and political measures” to reopen the strait, after 35 countries signed a statement expressing their willingness to contribute to efforts to ensure safe passage for shipping.
The 10-year U.S. Treasury yield fell to 4.31% on Wednesday from 4.33% on Tuesday. The 30-year US Treasury yield fell from 4.91% to 4.89%.
The pound rose to $1.3324 on Wednesday afternoon from $1.3205 at the close of trading on Tuesday. Against the euro, the pound strengthened to 1.1476 euros from 1.1463 euros.
The euro rose against the dollar to $1.1608 from $1.1523. Against the yen, the dollar was trading lower at 158.66 yen against 159.02 yen.
On the FTSE 100, risk sentiment saw gains for banks Lloyds, up 5.8%, NatWest, up 5.4%, and Barclays, up 5.1%.
British Airways owner International Consolidated Airlines flew 5.7% more, low-cost airlines easyJet and Wizz Air soared 5.0% and 6.2% respectively.
But homebuilder Berkeley Group plunged 9.7% as its decision to halt land purchases amid uncertainty over the Iran war led to significant reductions in profits.
In an unscheduled trading update, the Surrey-based housebuilder said its fears, expressed in a recent trading statement, that the economic fallout from the conflict in the Middle East could reduce confidence in a near-term market recovery “have now become a reality.”
The developer said it is reducing investment in ongoing work to match current sales levels and will not acquire new land.
Berkeley anticipates generating more than £1.4 billion of pre-tax profits, over the 2027 to 2030 financial period, which analysts at RBC Capital Markets said was 29% below the Visible Alpha consensus of £1.98 billion.
Mold said Berkeley has a “long reputation for being adept at analyzing the ups and downs of the housing market.”
“In that context, the measures the company has announced today will make others take notice and take notice,” he said.
Rightmove fell 1.4% as it said it will “vigorously defend” a proposed class action brought against it, as estate agents accuse the company of charging excessive fees.
The London-based online property portal confirmed that it is aware of reports that an application to commence class action proceedings has been made to the UK Competition Appeal Tribunal.
On the FTSE 250, Trustpilot rose 7.3% as Panmure Liberum rose to “buy” from “hold”, while Raspberry Pi extended Tuesday's excellent gains with a further 13% rise.
Gold was trading at $4,781.92 an ounce on Wednesday, up from $4,613.15 at the same time on Tuesday.
The biggest risers on the FTSE 100 were Babcock International, up 110.0p to 1,268.0p, Rolls Royce, up 75.0p to 1,207.0p. 192.0p to 4,720.0p.
The biggest fallers on the FTSE 100 were Berkeley Group, down 332.0p to 3,104.0p, BP, down 30.3p to 576.0p, Shell, down 139.5p to 3,443.5p, Rightmove, down 6.0p to 422.9p and British American. Tobacco, which fell 58.0 pence to 3,104.0 pence. 4,313.0p.
Thursday's global economic calendar includes trade numbers in the US and Canada, and weekly US jobless claims.
Thursday's domestic corporate calendar includes Baillie Gifford Japan Trust's half-year results.
– Contributed by Alliance News
