FTSE 100 slumps as US strikes test peace optimism

The FTSE 100 closed 0.8% lower at 10,425.96 on Thursday after US and Iranian forces exchanged strikes, undermining optimism for a peace deal. The conflict escalated with Kuwait reporting retaliatory fire and Israel declaring parts of southern Lebanon a combat zone. A potential 60-day memorandum of understanding between the US and Iran was reported by Axios, but final approval from President Donald Trump remained pending. Market volatility extended to global indices, with the FTSE 250 down 0.3% and the AIM All-Share slightly up. European markets also declined, while US stocks showed mixed performance, with the S&P 500 and Nasdaq rising marginally despite broader economic concerns. US economic data highlighted the strain from Middle East tensions, with the personal consumption expenditures (PCE) inflation index rising 3.8% year-over-year in April, the highest since 2023. Core PCE inflation also climbed to 3.3%, reflecting persistent price pressures. Meanwhile, first-quarter GDP growth was revised down to 1.6%, with slower consumer spending and weaker business inventories contributing to the downturn. Economists noted the data suggested growing consumer stress, though it was unlikely to alter the Federal Reserve’s current policy stance. The US Commerce Department attributed the revisions to reduced services spending, particularly in healthcare, and lower business investment. Brent crude prices fell to $94.57 per barrel amid the uncertainty, down from $96.61 the prior day. Investment director Russ Mould of AJ Bell warned that the renewed strikes were testing the ceasefire and delaying negotiations to ease tensions in the Strait of Hormuz. The instability risks prolonging economic disruptions, with global markets remaining sensitive to developments in the region.