Europe close: Shares fall on renewed Middle East fighting

(Sharecast News) - European shares edged lower on Tuesday as renewed fighting between the US and Iran clouded the outlook for peace, while oil prices were mixed.

The pan-European Stoxx 600 fell 0.57% to 628.01.

Germany's DAX declined 0.8% to 25,184.89 and France's CAC 40 lost 1.03% to 8,173.11, while London's FTSE 100 rose 0.24% to 10,491.39.

In commodities, Brent crude futures were last up 4.1% on ICE at $100.08 per barrel, while the NYMEX quote for West Texas Intermediate fell 2.56% to $94.13.

Danni Hewson, head of financial analysis at AJ Bell, said: "It's been a choppy start to the shortened week for investors on both sides of the Atlantic, but despite concerns about the path to peace in the Middle East and the oil price nudging back above $100 a barrel, both London and Wall Street held onto early optimism."

US forces fired on Iranian vessels on Monday, claiming they were laying mines in the Strait of Hormuz, despite president Donald Trump's assertions that talks with Tehran were making progress.

An Iranian foreign ministry spokesperson contradicted Trump's optimism, saying "no one can claim we are close to reaching an agreement" until there was clarity around Tehran's nuclear programme.

Geopolitical tensions were also heightened after Russia told the US to evacuate its diplomats and citizens from Kyiv amid a wave of drone and missile strikes on civilians in the Ukrainian capital.

Axel Rudolph, chief technical analyst at IG, said: "Falling yields and retreating oil prices on hopes of a US-Iran ceasefire extension and possible agreement helped US stock indices kick off the week on a strong footing as traders returned from a long weekend.

"The Nasdaq 100 and S&P 500 traded in record highs with the latter on track for its eight consecutive week of gains with tech stocks leading the way."

Rudolph said the oil market remained caught between peace hopes and continuing military activity.

"While WTI crude fell around 3% - to below $94 per barrel and close to a five-week low - Brent hit a one-month low before regaining recently lost ground.

"Markets weighed optimism over ongoing US-Iran ceasefire talks against renewed US military strikes in southern Iran and continued uncertainty around the Strait of Hormuz."

UK shop price inflation rises in May

On the economic front, UK shop price inflation rose at the start of May as retailers began to feel the impact of the US war on Iran, according to the British Retail Consortium and NIQ.

Overall shop price inflation increased to 1.2% year-on-year from 1.0% in April, while non-food inflation rose to 0.5% after a 0.1% decline the previous month.

Food inflation eased to 2.7% from 3.1%.

Helen Dickinson, chief executive of the BRC, said the sharpest price increases were in furniture and health and beauty, driven by higher raw material and shipping costs.

She said households were still benefiting from lower food inflation and promotions, but warned that retailers faced "significant cost pressures, including higher energy bills and disruption linked to the conflict in Iran".

Separate CBI data showed UK retail sales volumes remained weak in May, although the pace of decline eased from April's steep fall.

Annual retail sales volumes posted a weighted balance of -46%, compared with -68% in April, while sales for the time of year were judged "poor".

Retail selling prices rose at their slowest pace since February 2025, but firms remained downbeat and expected to cut investment and headcount.

Charlotte Dendy, the CBI's economic surveys and data manager, said the slowdown in retail price growth underlined the weakness in demand facing retailers.

She said the Chancellor's temporary VAT cut on family activities over the summer should help consumer confidence, but added that lasting progress on the cost of living depended on making it easier and cheaper for firms to operate.

In the US, consumer confidence slipped in May.

The Conference Board's headline index edged down to 93.1 from an upwardly revised 93.8 in April, while the present situation index fell to 121.2.

The expectations index rose to 74.4.

Dana Peterson, chief economist at the Conference Board, said confidence weakened as the inflationary impact of the Middle East war intensified, with consumers less positive about current business and labour market conditions.

BP slides on chairman departure, Kingfisher in the green

In equity markets, Ferrari fell 8.37% as the sports car maker launched its first electric vehicle.

BP dropped 4.92% after announcing the surprise removal of chairman Albert Manifold.

The company said the decision reflected "serious concerns" relating to governance standards, oversight and conduct.

"BP's shares have tumbled on news that its chairman has been ousted over 'conduct' issues," Hewson said.

"It's a big mess for the oil giant, which had sought to put the past behind it and embark on a significant turnaround plan after bringing in two new brooms to sweep out any cobwebs and deliver stability.

"Whilst not all investors had been won over by the appointment of Albert Manifold, he was seen as someone who could help deliver momentum as the company shifted away from renewables and doubled down on its promise to get the most out of its hydrocarbon assets," she added.

Hewson said another leadership change would be unsettling for long-standing shareholders.

"Although the board made no comment on the reasons for Mr Manifold's sudden departure, it did issue a statement in support of new CEO Meg O'Neill who was hailed for her 'bold action'.

"But her job has just been made more difficult as she now has to adapt to another hand on the tiller at a time when the course is still being plotted."

On the upside, Kingfisher rose 1.71% after the DIY chain owner held guidance despite a fall in first-quarter sales.

"Another day of scorching temperatures in the UK may have many households reconsidering their outdoor spaces, as early losses for B&Q-owner Kingfisher were replaced by a spritely share price gain," Hewson commented.

"People might have been slow to spend in the first few months of the year, but blue skies have a way of improving consumer sentiment," she added.

"With temperatures expected to stay elevated for several days, there's plenty of time to make good use of a new BBQ or set of patio furniture."

Reporting by Josh White for Sharecast.com.