European Stocks Fall, UK and Iran Crises Drive Risk-Off
European stocks closed lower on Tuesday (May 12), dragged down by rising geopolitical uncertainty as the prospect of a swift resolution to the US-Iran war became increasingly remote, while the political crisis in the UK added to sentiment pressure. The pan-European Stoxx 600 index fell nearly 1.1% by the end of the session, with most sectors and major bourses in the red.
In the UK, investors monitored escalating pressure on Prime Minister Keir Starmer after government ministers joined more than 70 Labour MPs in calling for Starmer to resign or set a timetable for his departure, following the disastrous results in last week's local elections. Starmer insisted he would not resign and said the party's leadership challenge mechanism had not yet been triggered, although he acknowledged "doubts" and the resignations of several ministerial staff.
This political pressure was reflected in the UK bond and foreign exchange markets. The yield on 10-year gilts rose around 10 basis points to 5.10%, while the pound sterling fell 0.7% against the US dollar and weakened 0.3% against the euro.
Geopolitically, optimism for a US-Iran peace deal took another hit after Trump said the ongoing ceasefire was "on life support" and called its condition "unbelievably weak" after Iran sent what he deemed an "unacceptable" retaliatory response to Washington's proposal to end the war. The combination of geopolitical risks and domestic political uncertainty in the UK reinforced investors' defensive bias and pressured risk assets in Europe.
The market's next focus will be on the development of political pressure on Starmer and its impact on gilts and the pound, along with the direction of the ceasefire and signals from US-Iran diplomacy, which will determine whether geopolitical uncertainty remains a source of risk premium in global assets. (arl)
Source: Newsmaker.id
