London’s FTSE 100 index posted modest gains on Wednesday, reflecting investor caution amid persistent Middle East tensions and broadly expected UK inflation data ahead of coming interest rate decisions in the UK and the US. The FTSE 100 closed slightly up by 0.1% at 8,843.47, while the FTSE 250 and AIM All-Share also posted small increases. Market attention remained firmly fixed on developments in the Middle East as the Israel-Iran conflict entered its sixth day, with Iran’s Supreme Leader, Ayatollah Ali Khamenei, firmly rejecting US President Donald Trump’s call for an “unconditional surrender.” Brent crude oil prices experienced fluctuations, later dipping to $75.06 per barrel after earlier rising above $77, reflecting nervousness over the possibility of Iran blocking the Strait of Hormuz—a vital chokepoint through which around one-fifth of the world’s oil supply passes. Khamenei cautioned that any US military action would inflict “irreparable damage,” underscoring the high stakes for global energy markets and investor sentiment.

President Trump indicated he was weighing whether the US would join Israeli strikes against Iran while claiming that Tehran had sought negotiations to end the conflict, though he remained non-committal: “I may do it, I may not do it,” he told reporters. However, Khamenei publicly dismissed US overtures. In a meeting with Iranian officials, he stated that Iran would not accept US demands, describing US negotiations as a means to “assert dominance” rather than find resolutions. This hardened stance came after Trump’s letter to Khamenei proposing nuclear talks but also warning of military consequences, which Iran’s Foreign Minister Abbas Araqchi said they had not yet officially received. The White House reiterated that the US preferences diplomatic solutions but remains prepared for military action, with tensions unresolved and diplomatic channels effectively closed for now.

Meanwhile, financial markets balanced these geopolitical risks against domestic economic indicators. UK inflation figures released shortly before the close in London showed consumer prices rising by 3.4% year-on-year in May, a slight easing from April’s 3.5% but broadly in line with expectations. Core inflation, which strips out energy, food, alcohol, and tobacco, also eased moderately to 3.5%, though some underlying pressures persisted—especially in services where inflation slowed to 4.7% from 5.4% in April. Analysts noted the progress on services inflation could give some comfort to the Bank of England’s Monetary Policy Committee ahead of its rate decision, expected to maintain the bank rate at 4.25%. However, the central bank remains cautious, given strong food inflation and recent commodity price volatility.

The Federal Reserve is also poised to keep rates steady in its upcoming meeting, with markets almost certain rates will hold at the current 4.25%-4.50% range following several recent pause decisions. Although US labour market indicators suggested some softening with initial jobless claims rising modestly, inflation risk remains the dominant concern, deterring any near-term rate cuts. This cautious backdrop helped US equity indices to modest gains at the London market close, with the Dow, S&P 500, and Nasdaq all up by about 0.5%.

In Europe, the inflation outlook was similarly subdued, with final Eurostat data confirming a slowdown in the eurozone’s annual inflation rate to 1.9% in May—below the European Central Bank’s 2% target for the first time in over three years. Currency markets showed slight pound weakness against the dollar and a marginally stronger euro, while Treasury yields eased slightly, reflecting the cautious mood.

On the corporate front, industrial stocks such as Melrose Industries gained, buoyed by optimism following positive discussions at the Paris Air Show, while consumer-facing businesses faced more headwinds, with shares like Howden Joinery falling amid concerns over demand softness. Wealth management firm Rathbones attracted renewed investor interest after a major acquisition, while precious metals saw prices edge higher amid broader risk-off sentiment linked to geopolitical uncertainties.

Looking ahead, markets will keep a close eye on central bank decisions this week, including those from the Bank of England, the Federal Reserve, and other global economies, as well as ongoing geopolitical developments in the Middle East, which continue to pose a significant threat to global energy supplies and economic stability.

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Source: Noah Wire Services