London open: Stocks edge lower as US-Iran deal remains elusive; easyJet surges

(Sharecast News) - London stocks edged lower in early trade on Monday after the US and Iran exchanged strikes over the weekend, and as data showed that house prices fell in May for the first time this year.

At 0825 BST, the FTSE 100 was down 0.3% at 10,377.46, while Brent crude was 3% higher at $93.84 a barrel.

Kathleen Brooks, research director at XTB, said: "Even though there have been attacks from both sides, the market is holding onto the fact that negotiations ae ongoing, and an elusive Iran/ US deal to end the war in the Middle East and to reopen the Strait of Hormuz will still be found.

"As the focus switches to a raft of macro releases later this week, investors will need to watch how this plays out, and any delay in reaching a deal could knock market sentiment.

"Financial markets are clearly leaning towards a deal getting done, but the crisis has now entered its fourth month.

"The latest reports suggest that President Trump has demanded changes to the latest Memorandum of Understanding, which could lead to more negotiations over the coming days, meaning that a potential deal may not come until late this week. However, markets seem to have infinite patience when it comes to this conflict ending."

On home shores, investors were mulling industry data showing that house prices fell for the first time this year in May, as weakening consumer sentiment and rising costs weighed on the market.

According to the latest Nationwide house price index, annual growth slowed to 1.7% from 3% in April, while month-on-month, prices fell 0.6%. In April, house prices rose 0.4%. The average house price now stands at £278,024.

Analysts had been expecting prices to soften in May but by a more modest 0.1%.

Robert Gardner, Nationwide's chief economist, said: "Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market rates, some loss of momentum was to be expected.

"Indeed, consumer confidence has weakened noticeably since the start of the conflict.

"The UK economy entered this shock on a slightly stronger footing than expected. Nevertheless, economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East."

However, Gardner noted that the UK housing market had proved "remarkably resilient" in recent years, supported by solid household finances, while housing affordability has improved.

"This provides some confidence that, if the latest shock passes relatively quickly and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived."

In equity markets, easyJet surged after US investment firm Castlelake announced late on Friday that it was in the early stages of considering a possible offer for the budget airline.

EasyJet said on Monday that it is not in talks with Castlelake and that any bid would be "highly opportunistic" given the fact that its share price is "temporarily depressed" due to the current situation in the Middle East and its impact on customer confidence and jet fuel prices.

Under UK takeover rules, Castlelake has until 1700 BST on 26 June to announce a firm offer or walk away.

JPMorgan said Castlelake is "credible". It noted that the firm has a history in the European airline sector and a specialism in asset-based investing, including aviation. The bank also said easyJet has several attractive features for an alternative owner, including its current/future fleet assets and slots at constrained primary airports.

"In our view easyJet and minority shareholders would at least consider a deal at the right price," JPM said.

Halma rallied after Goldman Sachs reiterated its 'buy' rating on the shares and lifted its price target.

Elsewhere, renewable energy business Drax edged up after agreeing to buy Bluefield Solar Income Fund in a cash deal worth about £548m.

Applied Nutrition shot higher as it lifted its revenue expectations for the year.