London stocks are expected to open lower on Thursday as investors digest a landmark US-Iran peace agreement, a more hawkish-than-expected Federal Reserve outlook, and a busy day of UK economic data.
FTSE 100 futures indicate the index will open around 31 points lower at 10,477.41 after closing marginally higher at 10,508.61 on Wednesday.
The cautious tone persists despite the formal signing of an agreement between the United States and Iran aimed at ending the conflict in the Middle East and restoring normal energy exports through the Strait of Hormuz.
US President Donald Trump and Iranian President Masoud Pezeshkian signed the memorandum of understanding following the G7 summit, with both sides confirming the agreement. Under the framework, Iran has agreed to dilute its enriched uranium stockpile in exchange for sanctions relief, access to a reconstruction fund and the resumption of unrestricted oil exports.
The agreement is expected to lead to the immediate reopening of the Strait of Hormuz and the removal of restrictions affecting Iranian ports and shipping.
Oil markets continued to respond positively to the breakthrough. Brent crude fell to around $77.57 per barrel, extending a dramatic decline from levels above $120 seen during the height of the conflict. The lower oil price is helping ease inflation concerns globally but is also weighing on energy producers.
Attention is now shifting towards central bank policy after the Federal Reserve left interest rates unchanged but adopted a notably firmer stance than markets had anticipated.
In the first meeting chaired by Kevin Warsh, the Fed maintained rates at 3.50% to 3.75% but removed language suggesting a bias towards future rate cuts. Updated projections indicated that most policymakers now see rates remaining unchanged or potentially moving higher, rather than lower.
The more cautious monetary policy outlook contributed to a broad sell-off on Wall Street, with the Dow Jones Industrial Average falling 1.0%, the S&P 500 declining 1.2% and the Nasdaq Composite retreating 1.3%.
Asian markets were mixed overnight. Japan’s Nikkei 225 gained 1.8%, while South Korea’s Kospi reached the historic 9,000-point level for the first time, driven by strong gains in semiconductor stocks. In contrast, Hong Kong’s Hang Seng fell 2.0% and China’s Shanghai Composite slipped 0.2%.
Back in the UK, investors will be closely watching labour market data and the latest Bank of England interest rate decision. Economists expect unemployment to remain at 5.0%, while policymakers face the challenge of balancing easing inflation pressures against ongoing wage growth and economic uncertainty.
With oil prices falling, central banks reassessing policy and geopolitical tensions easing, markets are entering a new phase where economic fundamentals are once again taking centre stage.
