European markets started the day on firmer footing as investors welcomed signs that diplomatic efforts over Iran could resume, helping push oil prices lower and easing fears of a prolonged energy shock.
The FTSE 100 moved higher in early trading as falling crude prices reduced concerns over renewed inflationary pressure hitting households and businesses. The prospect of a diplomatic breakthrough has provided some relief after weeks of heightened tension in energy markets.
Healthcare stocks also supported the index, with AstraZeneca shares rising after the pharmaceutical giant delivered stronger-than-expected second-quarter results, reinforcing confidence in one of Britain’s largest listed companies.
UK borrowing costs edged lower, but investor caution remained. Markets are continuing to assess the fiscal challenges facing the new Burnham administration, with questions surrounding public spending, defence commitments and the sustainability of government finances.
Beyond markets, extreme weather is adding to economic pressures across Europe. Wildfires sweeping through parts of France and Spain are threatening tourism, agricultural output and local government finances, while strengthening calls for greater investment in climate resilience and infrastructure.
Meanwhile, Shein’s falling profits have highlighted mounting challenges facing the ultra-low-cost fashion sector. The company is facing increasing regulatory scrutiny as governments tighten rules around low-value imports and examine the environmental and labour implications of fast fashion.
For investors, the day reflects a familiar balancing act: markets are benefiting from short-term relief over energy risks, but broader concerns over inflation, government spending and geopolitical uncertainty remain firmly in view.
Susannah Streeter, Chief Investment Strategist, Wealth Club said: “Fresh talk of talks over Iran is raising hopes that this newly acute phase in the Middle East crisis could see some resolution. The FTSE 100 has set off on a confident run upwards in early trade, while futures markets indicate that Wall Street will also start on the front foot.
“Corporate news has also lifted sentiment, with AstraZeneca shaking off some of the gloom surrounding its recent trial disappointment, with investors welcoming a stronger-than-expected set of second-quarter results. Solid growth in its oncology and rare diseases businesses helped offset weaker performances elsewhere, while the company reiterated its confidence in its long-term growth ambitions despite the setback.
“The big confidence booster for investors at the start of the week remains signs of progress in the Middle East. Early speculation that negotiations could resume has been reinforced by a second consecutive night without US strikes and by Tehran’s decision not to respond with further retaliatory action.
“While on the face of it the US administration is pushing the line that pressure is being maintained, markets remain cautious given the twists and turns during this conflict and the uncertainty over whether talks will actually come to fruition. Brent crude has fallen back sharply to trade around $90 a barrel, down by 10% since Friday, as fears of a prolonged energy crunch begin to ease.
“However, there is still significant uncertainty baked into these prices and a reticence about whether negotiations will lead to a lasting breakthrough. The weekend attacks by Houthi rebels continued at the Red Sea ports of Yanbu and Jizan, a reminder of how many more factions have been pulled into the war.
“Oil prices are still around a third higher over the month as tensions ratcheted up again. Nevertheless, with fresh negotiations looking increasingly likely, it appears to be a sign of progress, and there is an expectation that President Trump will want some kind of resolution given that the mid-term elections are looming and this war remains unpopular among voters.”
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