Investors have experienced another whipsaw in financial markets after peace talks between the US and Iran held in Pakistan ended without a deal.
Hopes had been raised last week that both sides were ready to end the conflict after US President Donald Trump announced a two-week ceasefire had been agreed to allow space for a permanent deal to be thrashed out.
The fragile ceasefire remains in place but it is unclear whether further talks will take place, and Trump subsequently said the US will blockade the Strait of Hormuz itself in the meantime to stop Iran offering toll-based access to non-US shipping.
The FTSE 100 fell 0.4% to 10,558, while the Stoxx Europe 600 dipped 0.62% to 611.
Oil has been the main barometer for the status of the conflict, and the price jumped once again on news the talks had reached an impasse, with Brent back up 7.7% to $102 and WTI up 8.1% at $104.
Futures markets are pricing in similar falls for the S&P 500 and Nasdaq when trading gets underway in the US this afternoon.
AJ Bell investment director Russ Mould said: “The failure of initial talks between the US and Iran cannot be counted as a huge eye-opener, but Donald Trump’s threat to launch a US blockade of the Strait of Hormuz might not have been on the market’s bingo card.”
“Investors are trying to gauge whether a fragile ceasefire will hold, and they are waiting to see the next moves from Tehran and Washington.
“Against this backdrop, oil above $100 per barrel is no surprise and the longer it persists at this level, the greater the scars for the global economy.”
He added the “stagflation word” is being “widely aired once again” amid geopolitical uncertainty and its likelihood to increase inflationary pressures.
“Asian and European markets turned lower, while the FTSE 100 was spared a larger drop thanks to heavyweight constituents BP and Shell making renewed progress on the latest move higher for energy prices.
“In what is becoming a familiar pattern, the losers in London included financial stocks, housebuilders and names with links to the aviation sector.”
See also: Calastone: Outflows reach highest levels since UK budget as geopolitical conflict boils
Derren Nathan, head of equity research at Hargreaves Lansdown, said: “A cut-and-dry path towards a resolution was perhaps too much to hope for by Sunday evening, and this may be just one of the twists and turns towards an agreement, but for now, the path beyond the current ceasefire is uncertain.
“Decisive action by the US to remove Iranian mines from the Strait of Hormuz is yet to restore confidence that the key transit route will re-open, and the proposed US blockade of ships heading to or from Iranian ports later today is likely to stoke tensions further as well as curb Iranian fuel exports.
“Markets will be paying more attention than ever to the mood music provided from first-quarter earnings and more so guidance for future periods.”
There was another notable geopolitical development over the weekend in the form of the Hungarian election, with has implications for the European Union beyond Hungary’s domestic matters.
Peter Magyar’s pro-EU TISZA party won a two‑thirds parliamentary majority, signalling the end of Viktor Orban’s 16-year spell in charge.
Matthias Siller, co- portfolio manager of Barings Emerging EMEA Opportunities investment trust, said: “The election win for Peter Magyar’s TISZA party will represent a structural break for Hungary, with meaningful macro, regional and equity‑market implications.
“A constitutional super‑majority would allow TISZA to cleanly dismantle the current governance framework without prolonged parliamentary obstruction.”
Siller added ‘key upside levers’ include rapid reinstatement of rule of law and central bank independence, immediately reducing policy risk, and normalisation of relations with the EU.
Hungary’s pivot would carry ‘outsized signalling effects’ across the region, with Slovakia and Serbia also set to see a meaningful boost to EU‑oriented and reformist political forces.
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