London stocks finished higher on Monday, with the FTSE 100 gaining 0.3% as optimism over renewed US-Iran peace talks helped lift airlines, retailers and housebuilders, although a sharp fall in oil prices weighed heavily on the UK’s largest energy companies.
The FTSE 100 closed 31.55 points higher at 10,761.33, while the FTSE 250 outperformed with a 1.4% gain to 24,795.85. The AIM All-Share advanced 0.6% to 757.92.
Around London’s close, the Dow Jones Industrial Average was up 1%, the S&P 500 gained 0.6% and the Nasdaq Composite advanced 0.7%, as investors returned to selected technology stocks.
The recovery followed a difficult October for US technology companies, with growing concerns over the enormous amounts being invested in artificial intelligence infrastructure.
Fidelity International investment director Tom Stevenson warned that investors were increasingly questioning whether the financial returns from AI could justify the sector’s elevated valuations and rising capital expenditure.
The debate intensified as Anthropic reported third-quarter revenue of $17 billion, compared with $1.4 billion a year earlier, representing growth of more than 1,100%.
The AI developer’s latest figures come ahead of its planned Wall Street flotation, while investors are also awaiting earnings from Apple and Advanced Micro Devices.
Oil prices suffered a substantial decline as diplomatic efforts raised hopes of progress towards ending the conflict between the United States and Iran.
Brent crude fell to $105.09 a barrel, compared with $117.61 on Friday, following reports that Washington and Tehran were considering renewed negotiations.
According to Axios, US Vice President JD Vance had contacted Iranian officials regarding a possible framework for talks, while Iran indicated it could reopen the Strait of Hormuz if conditions for ending the conflict were agreed.
The prospect of improved shipping access and reduced disruption to energy supplies helped ease concerns about prolonged shortages.
The decline in oil prices hit London’s energy sector, with Ithaca Energy falling 5.9%, BP dropping 4.4% and Shell declining 2.9%.
BP also announced completion of the $6 billion sale of a 65% stake in its Castrol lubricants business to Stonepeak Partners. The transaction leaves BP with a 35% interest in Castrol, which will operate independently under its own management and governance arrangements. BP’s remaining holding is subject to a two-year lock-up, after which the company has the option to sell its residual stake.
Airline shares benefited from the retreat in crude prices, with British Airways owner International Consolidated Airlines Group gaining 3.8% and Wizz Air advancing 5.2%.
Lower energy costs could improve airline profitability by reducing fuel expenditure, although the extent of the benefit will depend on hedging arrangements and future oil prices.
Housebuilders also strengthened as government bond yields declined, easing some concerns about borrowing costs and mortgage affordability.
Vistry Group surged 8.9%, Barratt Redrow gained 3.5% and Howden Joinery advanced 3.9%, reflecting improved sentiment towards housing-related businesses.
However, Ibstock plunged 10% after warning that its second-half performance would be materially below previous expectations.
The building materials manufacturer reported deteriorating trading conditions during September and October, prompting production reductions, cost-cutting measures and tighter cash management.
Chief Executive Joe Hudson said the company was adjusting production to align with weaker demand, although those measures would create additional short-term pressure on earnings.
UK manufacturing data provided a more encouraging economic signal, with the S&P Global manufacturing purchasing managers’ index rising to 52.8 in October from 51.9 in September.
The reading marked a five-month high and indicated continued expansion across Britain’s manufacturing sector ahead of the Autumn Budget.
Investors are now preparing for Thursday’s Bank of England interest rate decision, with markets widely expecting a quarter-point increase to 4%.
Bank of America expects policymakers to raise borrowing costs while signalling caution over the pace of any further increases, particularly given the potential inflationary impact of recent energy price volatility.
Manufacturing activity in the United States also remained resilient.
The upcoming US midterm elections on 3 November are another focus for financial markets, with investors assessing how the results could influence fiscal policy, regulation and government spending.
In currency markets, sterling strengthened to $1.3417 against the US dollar, compared with $1.3396 on Friday, while easing slightly against the euro to €1.1980.
US Treasury yields declined, with the 10-year yield falling to 4.89% and the 30-year yield easing to 5.25%.
Gold recovered to $3,968.02 an ounce, up from $3,898.22 on Friday, following the previous week’s sharp decline.
Among the FTSE 100’s strongest performers were JD Sports Fashion, Fresnillo, St James’s Place, Weir Group and Kingfisher, while Ithaca Energy, BP, Shell, Vodafone and Centrica were among the largest fallers.
The FTSE 100’s advance reflected a shift in investor sentiment as the prospect of lower energy prices supported airlines, consumer-facing businesses and housebuilders, helping offset significant losses across the oil and gas sector.
However, uncertainty remains over the outcome of US-Iran negotiations, the sustainability of the technology-sector recovery and the direction of interest rates.
Attention will now turn to Tuesday’s results from Associated British Foods and Hiscox, earnings from Apple and AMD, the US midterm elections and Thursday’s Bank of England decision, as investors assess whether the recovery in UK and global equities can continue.
