London close: FTSE edges lower as investors mull prospect of peace

(Sharecast News) - London stocks ended a little lower on Friday, unable to hold on to earlier gains as investors mulled the prospect of a peace deal between the US and Iran.

The FTSE 100 closed down 0.2% at 10,409.28, while Brent crude was 1.8% weaker at $91.99.

The conflict in the Middle East remained firmly in focus at the end of the week following a report late on Thursday that the US and Iran have reached an agreement on a 60-day memorandum of understanding to extend the ceasefire and launch negotiations on Tehran's nuclear programme.

Citing two US officials and a regional source involved in the mediation efforts, Axios said Trump had yet to give his final approval, while Iran had also not confirmed its acceptance.

Speaking to reporters at Joint Base Andrews on Thursday, Vice President JD Vance said the US was "very close" to finalising an agreement with Iran but that there were still a few sticking points, such as "a couple of issues on the nuclear stuff, the highly enriched stockpile and also the question of enrichment".

Kathleen Brooks, research director at XTB, said: "We reach another weekend with still no formal agreement between Iran and the US to end the war in the Middle East and reopen the Strait of Hormuz. The prospect of a resolution has been dangled all week, but according to the US vice president, there are still several sticking points to work out before an agreement can be reached."

Brooks added: "We are already past the three-month mark in the US/Iran war. The market is still expecting a deal to be agreed, but so far that has been elusive, with neither side willing to blink first.

"The market's patience may be tested if a deal is not agreed by early June, and this could have big ramifications for the oil price and the global stock market rally.

"Overall, it's been an exhilarating May from the market's perspective, however, risks are on the horizon as we move into June."

Patrick Munnelly at Tickmill Group said investors were pausing "after the recent run higher and continued to weigh geopolitical risk, energy-market uncertainty and the outlook for UK rates".

"The move was modest, but it reinforced the sense that the benchmark's earlier momentum has started to cool after its winning streak was snapped in the previous session," he said. "The tone was not aggressively risk-off, but it was cautious. After several sessions in which softer rate expectations, defence strength and selective corporate updates helped lift the market, investors appeared less willing to chase the index higher into the weekend. The renewed focus on US-Iran tensions and the Strait of Hormuz kept a geopolitical risk premium in the background."

Corporate news was scarce but Ocado surged after agreeing to enter a partnership with Asda to develop the latter's online business across the UK with the Ocado Smart Platform.

Russ Mould, investment director at AJ Bell, said the deal was "some much-needed good news" for Ocado.

"For Asda, this deal may give it some heft to take on Tesco and Sainsbury's at a time when its position in the UK groceries market is looking fragile, while for Ocado it is a ray of light after a difficult period for the business," he said.

"It still feels a world away from the idea Ocado could become a global leader, licensing its platform to help supermarkets around the world set up their own web-based solutions, a story which really captured the imagination during the pandemic. Particularly given this deal follows a major setback with its big US partner Kroger last year.

"Despite a healthy bump today, the shares still sit more than 90% below the all-time highs achieved in 2020 when excitement around the stock and the potential for global growth hit fever pitch.

"Management at first blamed Covid restrictions for preventing it from meeting companies to agree contracts at the pace the market was hoping for. In the intervening period, the company has been plagued by operational issues, a patent dispute and surging costs.

"Long-standing shareholders will hope this is the first step in a less grandiose but still meaningful growth story."

On the downside, retailers slumped after a raft of downgrades by Deutsche Bank. B&M European Value Retail and Wickes were both weaker after a downgrade to 'sell' from 'hold', while Currys and Dunelm were hit by downgrades to 'hold' from 'buy'.