UK stocks rise 2% on US-Iran peace deal hopes
Market Reaction and Sector Performance
May 6 (Reuters) - The main UK indexes jumped more than 2% on Wednesday, aided by hopes of a U.S.-Iran deal to end the war that has lifted energy prices and stoked concerns of inflation.
The blue-chip FTSE 100 index closed 2.2% higher at 10,438.7 points, while the midcap FTSE 250 climbed 1.7%, touching its highest level in two weeks.
Global Market Movements
• Global stocks rallied and oil prices slumped about 7% as Iran said it was reviewing a new U.S. proposal, following reports that Washington and Tehran were closing in on a one-page memorandum to end the war in the Gulf.
UK Equity Subsector Performance
Energy Sector
• Most major UK equity subsectors, barring energy, were higher. The FTSE 350 energy index fell almost 3.3%, tracking lower crude prices. [O/R]
Other Sectors
• Other economically sensitive sectors, including metal miners, banks, travel and leisure and housing, all rallied.
Interest Rate Expectations
• Traders reduced their bets of interest rate increases from the Bank of England this year, pricing in 50 basis points of hikes by the end of 2026, compared with the more than 60 bps of hike seen on Tuesday.
Economic and Political Context
Cost Pressures
• British services firms last month reported the sharpest acceleration in cost pressures in three-and-a-half years as the Iran war drove up prices for fuel and raw materials, a closely watched survey by S&P Global showed.
Political Developments
Local Elections
• Key local elections on Thursday could see Prime Minister Keir Starmer's Labour Party suffer heavy losses following a string of scandals and criticism that the party has failed to improve living standards.
Leadership Concerns
• Investors will be on guard for any signs that Starmer might be replaced.
Company Highlights
Diageo
• Diageo jumped 6.4% after the spirits maker beat third-quarter sales forecasts.
Next
• Next rose 4.4% after the clothing retailer said it would mitigate cost increases linked to the Iran war with modest price rises in some overseas markets, as it posted better-than-expected first-quarter sales.
(Reporting by Sruthi Shankar and Shashwat Chauhan in Bengaluru; Editing by Shinjini Ganguli and Sahal Muhammed)
