European shares rebound as worries of US involvement in Middle East ease
European shares rebounded on Friday after three sessions of declines, as a stall in the United States' involvement in the Middle East conflict came as a relief to worried investors.
The pan-European STOXX 600 was up 0.4% at 537.98 points at 0708 GMT. The benchmark is on track to log weekly declines for a second week.
Israel and Iran's air war entered a second week and European officials sought to draw Tehran back to the negotiating table after President Donald Trump said any decision on potential U.S. involvement would be made within two weeks.
The news improved market mood and helped recover some interest in risk assets that were being sold off during the week on uncertainty around how long the conflict would go on.
In the market, travel and leisure stocks gained the most, up 1.1%, as oil prices eased.
Conversely, energy shares were at the bottom of the index with a 0.7% decline, trimming some gains from this week.
Among stocks, London's Berkeley was the biggest percentage decliner, down 8%. The homebuilder named current finance chief Richard Stern as its new CEO, but reported an annual pre-tax profit slightly ahead of market expectations.
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The National
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Israel-Iran war could slow Gulf investment inflow in 2025, warns World Bank regional chief
Foreign direct investment in the Gulf could slow in the second half of this year as the war between Iran and Israel dents investor sentiment, the World Bank 's director for the region has said. Investors will probably adopt a wait-and-see approach as the conflict that started with Israel's attacks on Iran's nuclear sites on June 12 worsens, Safaa El-Kogali told The National in Riyadh. 'Even if they've started [investing beforehand], they [foreign investors] might hold off until they see things settling down a bit,' she said on the sidelines of a World Bank seminar on Sunday. De-escalation does not seem likely after President Donald Trump ordered the first-ever direct US military attack on Iranian soil earlier that day. The US attacked three Iran nuclear facilities with six bunker-buster bombs and launched Tomahawk missiles. GCC countries had varied in their ability to attract FDI in 2024. The UAE received Dh167 billion ($45.5 billion) in foreign direct investment last year, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said in a post on X on Thursday. This represented a 48 per cent increase, he added. The UAE accounted for 37 per cent of the total foreign investment flows in the region, he said. Saudi Arabia's net FDI inflows in 2024 decreased as a share of GDP, amounting to 1.1 per cent compared to 2.1 per cent in 2023, according to a recent report by the World Bank. Bahrain, Kuwait, and Qatar saw FDI fall by 7.3 per cent, 2.3 per cent and 0.5 per cent of GDP respectively from 2023 to 2024, it added. Oman saw FDI increase by 2.4 per cent of GDP. This was due to 'prudent fiscal management and diversification efforts' the report said. What is the impact? No one can accurately measure the impact of the escalation on the regional economies, but peace is necessary for economic security and the implications will be broad, Ms El-Kogali said. 'Increasing costs of commodities, of shipments – this will impact a number of industries that import raw material', she said. The conflict will add to inflation, which will affect investors and consumers alike, she added. 'Whenever there is uncertainty … in any region, tourists usually decide not to go,' she said. Travel and tourism made up about 11.4 per cent of the region's gross domestic product in 2024, according to the latest data from the Statistical Centre for the Co-operation Council for the Arab Countries of the Gulf. Oil prices, which have surged since the beginning of the war, will also have an impact on the fiscal balance of Gulf countries that still rely heavily on oil as their primary source of revenue and exports, she said. Brent and WTI surged by as much as 13 per cent in the first few hours of trading after Israel began its military campaign against Tehran. Oil prices posted a third weekly gain in a row despite falling on Friday as the war sparked supply fears. On Friday, Brent, the benchmark for two thirds of the world's oil, fell 2.33 per cent to settle at $77.01 a barrel. West Texas Intermediate, the gauge that tracks US crude, closed 0.28 per cent lower at $74.93 a barrel. Who will feel it more? Gulf countries that have diversified away from oil, such as the UAE, are more likely to resist hits caused by global economic uncertainty, Ms El-Kogali said. This was a key message of the World Bank report, Smart Spending, Stronger Outcomes: Fiscal Policy for a Thriving GCC, released last week, that measured the growth of Gulf economies until June 1. 'I think this report is really timely, because it focuses on what the GCC countries have been doing, and what impact, or the effect, those policies that have been put in place [have had],' said Ms El-Kogali. 'The UAE has started the diversification agenda a while back and currently, with 74 per cent of GDP being from the non-oil sector, puts them in a stronger position. 'The more you diversify, the more you have different opportunities to deal with crises that come your way. When you put all your eggs in one bag, and something happens to that bag, then you're in greater trouble.' Proper investment Ms El-Kogali said that higher oil prices can benefit Gulf countries, depending on how revenue is spent in the non-oil sector. 'We think that as the non-oil sector continues to be strong and growing, with the easing off of the oil production cuts, that the countries of the GCC have good gross prospects in the short and medium term,' she said. 'We really expect growth to reach 4.5 per cent by 2026 driven by the oil and the non-oil.' It takes time to see the returns of investments she added. This growth is particularly important during period of geoeconomic uncertainty. However, 'there may be the risk of spillovers' of the war which will impact the growth trajectory of Gulf nations, she said. Gulf countries have been prudent in the past during crises and 'we saw that implementing fiscal spending during downturns had a positive impact', she said. There is room to do more to further streamline spending and the Gulf countries must prioritise investments that have high returns, and can create jobs during difficult times, that will then sustain growth through economic cycles, she added.
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Global investors bracing for a knee-jerk selloff in stock markets
Investors are bracing for a knee-jerk selloff in stock markets after the weekend's US attack on Iran raised the specter of retaliation and higher oil prices. The Middle East situation takes center-stage for markets, overshadowing US economic data releases this week, as investors assess the impact of President Donald Trump's sudden decision to join Israel's military campaign against Iran on sentiment, inflation and interest rates. Trump called the attack "a spectacular military success" in a televised address to the nation and said Iran's nuclear enrichment facilities had been "obliterated". He said the US military could go after other targets in Iran if the country did not agree to peace. "It's hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike," said Steve Sosnick, chief market strategist at Interactive Brokers in Connecticut. "Really what we're looking at is secondary order effects - the price of oil, market stability, price hikes through the economy. No globally important stock is directly affected by what happened tonight.' The S&P 500 is hovering just below its February highs but has rebounded sharply from its early-April selloff, as tariff-related tensions have eased. However, the US benchmark index appears to be taking a breather at some 2.7% below its February closing high. The index has gone 27 trading sessions since coming within 5% of its February high but has not yet set a new record. The Israel-Iran conflict has already sent oil prices sharply higher and led to caution in markets. So far, the oil market has absorbed most of the impact from geopolitical turmoil, with equities relatively stable. Yet stock investors remain concerned that higher oil prices could stoke inflation and upset plans for interest rate cuts from the Federal Reserve. On Wednesday, the Fed held rates steady and policymakers signaled borrowing costs are still likely to fall this year. But they estimated the overall pace of expected future rate cuts would be slower than they saw at their March meeting. They cited expectations that higher inflation would flow from President Donald Trump's tariff plans. "The question is oil prices and what that does to inflation - which has implications for monetary policy and how long the Fed keeps rates "meaningfully restrictive"," said Sonu Varghese, global macro strategist at Carson Group. While investors expect the Middle East tensions to spur a near-term bout of nervousness in stock markets and a rush to safer assets such as the dollar and Treasuries, some also envisage a de-escalation in the situation. "I think it's going to be very positive for the stock market," said Mark Malek, chief investment officer of Siebert Financial, referring to how investors had been primed for two weeks of uncertainty based on White House statements that Trump would take that long to decide on his next move. "So this will be reassuring, especially since it seems like a one and done situation and not as if (the US) is seeking a long-drawn out conflict." Investors will also parse a slew of incoming data releases, including US business activity and housing sales on Monday, consumer confidence numbers on Tuesday and the PCE Price Index on Friday. US consumer confidence plunged in the past few months, with households fearing tariffs could prompt a recession and higher inflation. However, with inflation in check and the US reaching a truce in its trade fight with China, investors were expecting to see a pickup in sentiment. "Remember, the survey-based data all got crushed in the March, April, May time frame ... my expectation is we're still going to see an improvement," Mark Hackett, chief market strategist at Nationwide said before the US struck Iran. A key concern for markets would centre around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term interest rate cuts. Saul Kavonic, a senior energy analyst at equity research firm MST Marquee in Sydney, said the more likely scenario would see Iran respond by targeting American interests in the Middle East, including Gulf oil infrastructure in places such as Iraq or harassing ship passages through the Strait of Hormuz. The Strait of Hormuz lies between Oman and Iran and is the primary export route for oil producers such as Saudi Arabia, the United Arab Emirates, Iraq and Kuwait. "Much depends on how Iran responds in the coming hours and days, but this could set us on a path towards $100 oil if Iran respond as they have previously threatened to," Kavonic said. While global benchmark Brent crude futures have risen as much as 18% since June 10, hitting a near five-month high of $79.04 on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. "Much depends on how Iran responds in the coming hours and days, but this could set us on a path towards $100 oil if Iran respond as they have previously threatened to," Kavonic said. While global benchmark Brent crude futures have risen as much as 18% since June 10, hitting a near five-month high of $79.04 on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13. Reuters
