Europe close: Stocks higher despite Iran, US tensions

(Sharecast News) - European shares finished slightly higher on Monday, reversing early losses as markets navigated heightened geopolitical tension in the Middle East and fresh concerns over the independence of US monetary policy.

The pan-European Stoxx 600 edged up 0.16% to close at 610.62, after opening in the red amid unrest in Iran and reports of a criminal probe involving US Federal Reserve chair Jerome Powell.

Russ Mould, investment director at AJ Bell, said markets dipped as "investors feared about the independence of the Federal Reserve," adding that the investigation had "unnerved markets and raised questions about what might happen to the Fed once Powell steps down in May."

Germany's DAX rose 0.54% to 25,397.77, while France's CAC 40 slipped 0.04% to 8,358.76.

In London, the FTSE 100 ended up 0.16% at 10,140.70.

Sentiment was unsettled by reports of widespread protests across Iran, which human rights groups said had been met with a violent crackdown leaving almost 500 people dead.

Patrick Munnelly, market strategy partner at TickMill, said escalating unrest had driven a renewed flight to safety across global markets, noting that gold surged to a fresh record while safe-haven currencies strengthened amid rising geopolitical risk.

Geopolitical risks remained in focus after Iran said diplomatic channels with the US were still open, despite comments from Donald Trump that military options were being considered.

"We're looking at it very seriously," Trump said on Sunday.

"The military is looking at it, and we're looking at some very strong options. We'll make a determination."

Munnelly said oil prices recorded their strongest two-day rally since October as protests in Iran entered a third week, raising concerns about potential supply disruption from OPEC's fourth-largest producer.

Currency markets also reflected investor unease, with the dollar weakening after the US Department of Justice opened a criminal investigation into Jerome Powell.

The probe related to a $2.5bn renovation of the Federal Reserve headquarters and Powell's testimony on the project to the Senate banking committee last June.

Powell warned in a video message that the issue went to the heart of central bank independence, saying it was about whether interest-rate decisions would continue to be based on economic evidence or be driven by political pressure.

Mould said markets were increasingly worried that "Trump is meddling too much with policies that are meant to be set independently," warning that any loss of Fed independence could ultimately allow inflation to "get out of control."

Recruitment data shows UK labour market still weak

In economic news, a survey showed UK recruitment activity slowed toward the end of 2025 as rising costs and uncertainty weighed on hiring.

December's UK Report on Jobs from KPMG and the Recruitment and Employment Confederation found permanent staff appointments fell at the fastest pace since August, while temporary billings declined at their softest rate since June.

Demand for staff weakened, starting salary inflation hit a seven-month high and temporary wages rose for the first time in three months.

Munnelly said the figures pointed to "continued weakness in the labour market," noting that falling placements alongside rising pay highlighted a divergence that could complicate policymaking.

Jon Holt, group chief executive and UK senior partner at KPMG, said the jobs market was "still signalling caution," while REC chief executive Neil Carberry said improving hiring would require clearer signals to rebuild business confidence.

BE Semiconductor rises on order influx, Barclays in the red

In equities, BE Semiconductor surged after reporting a 43% jump in orders in the final quarter of 2025, driven by data-centre demand.

Abivax also soared amid renewed takeover speculation, extending a period of sharp volatility after the stock rallied nearly 1,700% last year.

On the downside, Heineken shares fell after the brewer said chief executive Dolf van den Brink would step down in May, a move Mould said came at "a difficult time for the alcohol industry" amid pressure on household finances and changing consumption habits.

Barclays slid sharply after Trump said he wanted a one-year 10% cap on credit-card interest rates, with Mould warning that while consumers might welcome lower rates, such a move could raise "questions about the knock-on effect of a cap on credit" and the availability of lending.

Reporting by Josh White for Sharecast.com.