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European stocks and US futures steadied while oil prices dipped on Monday after mediators said progress had been made in US-Iran peace talks, helping calm fears the fragile process to end the war was breaking down.
Meanwhile, the pound and UK bonds rose after Prime Minister Keir Starmer announced his resignation, paving the way for Britain’s seventh leader in 10 years.
The Iran war talks had earlier been overshadowed by Tehran’s announcement it had again closed the Strait of Hormuz, prompting US President Donald Trump to threaten fresh attacks.
But officials from Qatar and Pakistan said progress was made on a roadmap to reach a final deal in 60 days. That was backed up by US Vice President JD Vance, who said Tehran had agreed to allow nuclear inspections.
The apparent progress in discussions saw Brent crude futures shed early gains to ease 1.8% to $79.07 a barrel, far below its May peak of $126.41.
Europe’s STOXX 600 index wavered and was last up 0.15%, while US S&P 500 futures pared early losses to trade 0.1% lower.
“There does appear to be further progress being made during talks in Switzerland towards a lasting settlement, and oil prices have dipped again,” Susannah Streeter, chief investment strategist at Wealth Club, said of the Iran talks.
“It is clear there is still a long way to go, and more obstacles may emerge before a long-term deal is signed.” Asian stocks climbed overnight, supported by the apparent progress in peace talks. Japan’s Nikkei rose 1.6%, while South Korea’s red-hot market added 0.7%, after surging more than 11% last week on demand for semiconductor stocks.
The pound reversed earlier losses to trade flat at $1.324 while gilts rose on Monday after Starmer announced his resignation, which had been widely rumoured over the weekend.
Former Manchester Mayor Andy Burnham is the favourite to succeed Starmer, but investors said a key question for nervy UK bond markets would be who becomes finance minister. “A new leader does not fundamentally alter the difficult fiscal situation they’re going to inherit,” said Nick Rees, head of macro research at Monex Europe.
The euro eased 0.15% to $1.146, after hitting a three-month low on Friday at $1.1418.
Treasuries remained under pressure following a hawkish turn by the Federal Reserve last week that led markets to price in a 75% chance of a rate hike as early as September.
Futures imply around 38 basis points of tightening by year-end, while yields on 2-year notes rose as much as 4 basis points to the highest since early 2025 at 4.230%.
“Our baseline call is for patience and a first hike in the second half of 2027, but (we) believe the margin for error and the tolerance for further inflation is limited, with genuine risks of earlier hikes,” said Fabio Bassi, head of cross-asset strategy at JPMorgan. The Fed’s hawkish outlook helped push the dollar up 0.3% to 161.71 yen, with only the threat of Japanese intervention preventing the currency rising to 2024’s 40-year high of 161.96.
London’s domestically focussed FTSE index slipped to a one-week low on Monday, bogged down by political uncertainty after Prime Minister Keir Starmer said he will resign.
The internationally focussed FTSE 100 index slipped 0.1% by 0930 GMT, while the midcap FTSE 250 dropped 0.7%.
Greater Manchester mayor Andy Burnham, who recently won parliamentary elections, stands as the top candidate for prime minister, although investors say a change in leadership is unlikely to change conditions a lot.
“Britain’s been going in the wrong direction and I don’t really think, unfortunately, that any replacement for Keir Starmer, is going to be much different,” said David Morrison, senior market Analyst at Trade Nation.
Rate-sensitive household goods and home-construction stocks fell over 1% and were among top sectoral decliners while the pound eased 0.1% versus the dollar.
Former health minister Wes Streeting is also in the leadership race, but one senior figure in the party said they believed Streeting could do a deal with Burnham, giving him a senior role if he stayed out of the contest.
“I rather think that Rachel Reeves will probably be gone fairly soon. If we find out that Wes Streeting isn’t going to stand and gives Burnham his full support, then he might get rewarded with something like Chancellor of the Exchequer,” Morrison said.
Reeves was the Chancellor in the government led by Starmer, whose resignation paves the way for Britain to have its seventh leader in a decade.
The next candidate will be scrutinized over fiscal policy plans at a time when concerns over debt-backed public spending has sent the yield on the benchmark 10-year Gilt to its to its highest since 2008.
Citizens have been disappointed over Starmer’s handling of the economy as public debt and borrowing costs soared in recent years.
Geopolitical tensions in the Middle East also had investors price in no change to interest rates by the Bank of England this year, according to LSEG-compiled data.
Economic and political uncertainty, alongside geopolitical concerns, have weighed on the domestically focused midcap FTSE index, which underperforms the blue-chip FTSE 100 index this year.
Agencies
