Oil slides and markets rally after Iran declares end of military operations against Israel

Stock markets are clawing back losses after Iran announced an end to its military operations against Israel, bringing a measure of calm to investors rattled by a volatile morning of trading. Brent crude, which had surged to $98 a barrel earlier in the day, dropped back to $94.58, while European stock indices steadied and the UK’s FTSE 100 pushed into positive territory, up 22 points at 10,390.

Middle East tensions and market reaction

The turnaround came after Tehran’s military joint command said it was halting offensive operations following exchanges of fire between Israel and Iran, according to the Associated Press. Earlier, reports of explosions in central Tehran and Israeli airstrikes on Iranian defence systems had sent oil prices soaring and triggered a broad sell-off across Asian markets. South Korea’s KOSPI index fell by nearly 9 percent at one point, forcing a temporary suspension of trading, while Japan’s Nikkei 225 closed 3.8 percent lower. The pain had begun on Friday, when Wall Street’s S&P 500 fell 2.64 percent after a surprisingly strong US employment report led traders to conclude that the next move in US interest rates would be up, not down.

“Things could get a bit hairier today in the markets after a flare-up in geopolitical tensions over the weekend,” said Kyle Rodda, senior financial market analyst at Capital.com, before Iran’s announcement. “Iran launched strikes on Israel for its attacks on Hezbollah targets in Beirut, leaving a nervous wait for the Israeli response. There is the heightened risk the war escalates again as peace talks between the US and a clearly emboldened Iran stall.”

The conflict’s impact on oil prices remains a significant concern, particularly regarding potential disruptions to the Strait of Hormuz, a critical chokepoint for global oil and liquefied natural gas supply. Goldman Sachs estimates that traders are demanding roughly $14 more per barrel of oil because of the increased risks associated with the confrontation. Historical data from the Iraq war suggests that even with significant disruptions, oil prices may not reach the inflation-adjusted highs seen in that period. Donald Trump has demanded that both Israel and Iran “immediately stop shooting”, which appeared to reassure some traders. Defence contractor BAE Systems was among the top risers in London, up 1.45 percent, as JPMorgan analysts highlighted the company as a likely beneficiary of an increased US defence budget. BAE generates about 44 percent of its sales from the US defence market, the highest exposure among European defence companies covered by JPMorgan, and its order backlog has nearly doubled since the invasion of Ukraine in 2022.

AI sell-off: a deeper dive

Beyond the Middle East, a sharp sell-off in technology stocks has deepened investor unease. The Stoxx Europe 600 Technology Price Index was down nearly 0.5 percent this morning, and the European-wide Stoxx 600 index dropped to a two-week low earlier in the day, weighed by the global retreat from artificial intelligence shares. The trigger, according to Charu Chanana, chief investment strategist at Saxo, was Friday’s strong US jobs report, but the deeper issue was crowded positioning in AI and semiconductor stocks.

Chanana identified five reasons for the sector’s decline. First, AI crowding: semiconductors and AI-linked names had become the default long trade, making the market vulnerable to even small disappointments. Second, top-heavy leadership: a small group of AI winners had done much of the heavy lifting for broader indices, making the market look stronger on the way up but far more fragile on the way down. Third, expectations were too high: the reaction to chipmaker Broadcom showed that “good” performance is no longer enough for AI-linked names; investors want upside surprises, stronger guidance, clear monetisation and proof that AI demand is still accelerating. Broadcom’s sales outlook fell short of lofty market expectations, triggering profit-taking and raising concerns about the AI spending cycle. Fourth, AI funding questions: AI is not just a growth story but also a highly capital-intensive one. Alphabet’s funding moves and those of Meta remind investors that the next leg of AI infrastructure requires serious money, raising questions about whether capital expenditure will remain disciplined, whether dilution risk rises, and whether returns can justify the spending. Fifth, geopolitical risk added another layer of uncertainty, making bad news travel faster in already stretched markets.

Nvidia chief executive Jensen Huang, speaking during a trip to Seoul, dismissed the sell-off as a buying opportunity. “We’re at the beginning of it, and whatever happened to the stock market, you should be very happy because now you can buy at a discount,” he said. “Everybody should be very excited.” Huang argued that the buildout of artificial intelligence has just begun and that AI will become global infrastructure, akin to the internet. He confirmed a multi-year partnership with SK Hynix for next-generation memory chips for AI factories, including memory for Nvidia’s Vera Rubin AI supercomputers, Vera CPUs, RTX Spark-powered PCs and Jetson Thor robotic computing platforms. Huang added that memory shortage is expected to continue for several years, benefiting companies such as Micron Technology and SanDisk. Nvidia and SK Telecom are also collaborating on AI infrastructure.

Despite the turmoil, Mohit Kumar, an economist at investment bank Jefferies, said “we are not worried about an AI bubble”. He noted that capital expenditure spending remains strong and that capex as a proportion of free cash flow is well below the levels of 1999-2000. “One area where we differ relative to 1999-00 is that in the dot‑com era, a bulk of capex spending was done though debt and equity issuance. The mix is changing, but we are still far from concerning levels,” he said. Futures markets indicated the Nasdaq Composite index could rise 0.6 percent in Monday’s session, suggesting some recovery. Derren Nathan, head of equity research at Hargreaves Lansdown, said: “Despite the overnight sell-off in Asia, US investors look to be taking a more measured view with futures in the tech-led NASDAQ holding firm compared to a 0.4% decline in the more broadly focussed Dow Jones Industrial Average.”

Driverless taxis and jobs

Concerns about the impact of automation on employment were raised at the GMB union’s annual congress in Blackpool, where delegates heard that driverless taxis could cost 300,000 drivers their jobs. The congress agreed to call on the government to introduce laws to protect taxi and private hire drivers from job losses and reductions in earnings caused by the rollout of driverless vehicles. Ali Haydor, a private hire driver and GMB Congress delegate, said: “We hear a lot from those on the right of politics about people not working and relying on benefits, but replacing human workers will potentially push thousands into unemployment and poverty. The gig economy firms present driverless taxis as progress – they tell us this technology will increase efficiency, reduce costs and benefit society, but progress for whom? Technology will continue to develop, but workers should not be expected to carry all the risks while companies take all the rewards.”

Meanwhile, the deployment of autonomous vehicles is accelerating. UK company Wayve is planning to offer its driverless vehicles to paying passengers in London “in the next couple of months”. Wayve has partnered with Uber for public-road trials of Level 4 autonomous vehicles in London and aims to scale across Europe. The company has raised $1.5 billion from investors including Softbank, Nvidia, Microsoft, Uber, Nissan and Stellantis, and has reached an agreement with the UK government to boost self-driving car technology development, focusing on research sharing for responsible deployment. Alphabet’s subsidiary Waymo is also preparing to make its driverless private hire vehicles available in London by the end of 2026. Last month, ministers began inviting bids from operators to run autonomous taxis, buses and private-hire cars in the UK.

Italian banking battle

A fresh tug-of-war is playing out over Italy’s oldest bank, Monte dei Paschi di Siena (MPS), founded in 1472. Intesa Sanpaolo, Italy’s largest lender, tabled an unsolicited €30.6bn bid for MPS on Monday. If successful, the merger would create the euro zone’s second-biggest banking group by market capitalisation, worth €126bn, behind Spain’s €155bn Banco Santander. The move came just hours after Italy’s fourth-largest lender, Banco BPM, sent a letter to MPS on Sunday suggesting a merger that would create a “new national champion” and the second-largest bank in Italy, leapfrogging Unicredit, with a market cap of around €50bn.

MPS returned to private ownership two years ago after being bailed out by the Italian government in 2017 and privatised in 2023-2024. It had been eyed as a potential takeover target, but took markets by surprise when it bought and merged with rival Mediobanca in a €16bn deal last year. Intesa’s bid involves breaking up the bank: it would sell 635 MPS branches and the MPS brand to insurer Unipol Assicurazioni, while keeping Mediobanca and its 13 percent stake in insurer Generali. The arrangement is designed to head off competition concerns. All eyes are now on MPS bosses’ response, which could transform the Italian banking landscape.

Other corporate developments

Ingredients developer Tate & Lyle has agreed to be bought by US rival Ingredion in a £2.7bn deal, sending its shares up 12 percent. Once famous for sugar refining, Tate & Lyle now makes sweeteners, fibres and stabilisers for food producers. The deal values the company at 595 pence per share plus 20 pence in dividends, equivalent to a 64 percent premium before a recent surge in its share price, according to interactive investor’s head of investment, Victoria Scholar. The acquisition is expected to create a global leader in ingredient solutions with projected annual cost synergies of $130 million by the end of 2030, but could lead to a “material reduction” in Tate & Lyle’s workforce, affecting around 475 jobs globally. The deal requires shareholder, UK High Court and antitrust approvals, with completion targeted for the second half of 2027.

In Copenhagen, shares in drugmaker Zealand Pharma fell 25 percent after trial data showed its injectable obesity drug survodutide had worse side effects and higher patient dropout rates than rival treatments. Late-stage data presented at a medical conference showed that nearly one in four patients taking the highest 6-milligram dose stopped treatment due to side effects, with about one in five dropping out specifically because of gastrointestinal problems.

On the IPO front, SpaceX is preparing for a blockbuster listing on the Nasdaq, with a valuation targeted between $1.7 trillion and $2 trillion. UK retail investors will have access to the IPO through platforms including Hargreaves Lansdown, AJ Bell, Interactive Investor and Etoro, with a minimum investment of £1,000 through Hargreaves Lansdown. The listing is scheduled for June 12, 2026, and comes as the market mood in the week’s countdown is being closely monitored.