U.S. forces conducted defensive strikes in southern Iran on Tuesday, targeting missile launch sites and mine-laying boats, according to Central Command. The strikes followed a weekend of cautious optimism over a potential peace deal between the U.S. and Iran, which had pushed oil prices down by nearly 7% on Monday. However, the military action reversed some of those gains, with Brent crude rising over 3% to $99.36 per barrel by Tuesday morning.
U.S. Secretary of State Marco Rubio stated that negotiations with Iran could take "a few days," tempering earlier hopes for a swift resolution. He emphasized that the Strait of Hormuz must reopen "one way or the other," a critical choke point for global oil supplies. The strikes came despite President Donald Trump's earlier assertion that negotiations were "proceeding nicely."
European stock markets opened mixed on Tuesday, with the Stoxx 600 down 0.18%, while the FTSE 100 in the U.K. rose 0.71%. U.S. stock futures pointed higher after a long holiday weekend. Analysts noted that while the limited nature of the strikes may have assuaged some fears of escalation, the ceasefire remains fragile.
The U.S. strikes targeted two Islamic Revolutionary Guard Corps vessels accused of attempting to place mines in the Strait of Hormuz. Iran responded by launching missiles toward U.S. aircraft, prompting further American strikes on missile launch systems near Bandar Abbas. The escalation raised concerns about the stability of the region and its impact on global energy markets.
Meanwhile, the conflict in Ukraine continued to weigh on investor sentiment, with Russia's foreign minister warning of imminent strikes on Kyiv. The dual geopolitical risks contributed to volatility in oil and stock markets, with investors closely monitoring developments in both regions.
Analysts at ING noted that markets were still pricing in a de-escalation in the Middle East, despite the recent strikes. The shift in sentiment also affected currency markets, with the dollar steadying after earlier gains. The euro and British pound both saw slight declines, while the yen weakened against the dollar.
In the U.K., the FTSE 100's gains were led by miners, retailers, and housebuilders, with Endeavour Mining, Glencore, and Rio Tinto among the top performers. Kingfisher shares jumped 2.98% after a mixed first-quarter trading update, while Melrose Industries led the FTSE 100 higher.
The broader economic outlook remains uncertain, with inflation and interest rate concerns lingering. U.S. consumer confidence data for May will be closely watched, following a record low in the University of Michigan survey. The week ahead is expected to bring further inflation updates, which could influence market sentiment.
Overall, the market's reaction to the U.S. strikes was muted, reflecting a cautious optimism that a peace deal could still be reached. However, the path forward remains unclear, with both sides signaling that negotiations may take time.