Oil prices fell sharply and European stocks and government bonds rallied on Monday after Donald Trump cancelled planned strikes on Iran and said peace talks were set to resume, easing fears of a wider Middle East conflict disrupting oil supplies. The move reverses some of the sharp rises seen in July, when fighting between the US and Iran and attacks on tankers in the strait of Hormuz had pushed prices up by more than 20%, and comes as a relief for markets and consumers alike, even as Iran denied Trump's claim that talks would begin immediately.

Brent crude dropped as much as 7.3% before settling around 5% lower at $83.47 a barrel, while US West Texas Intermediate fell more than 5% to $79.47. Despite the market rally, UK petrol and diesel prices continued to climb over the weekend, with petrol reaching an Iran-war high of 160.85p a litre and diesel topping 180p for the first time since 9 June, though the RAC expects pump prices to stabilise this week. European shares also gained, with the Stoxx 600 up 0.5% and the FTSE 100 up 30 points, while the US 10-year Treasury yield eased to 4.68%; analysts cautioned that hopes of a deal could still collapse if Iran maintains pressure on shipping through the strait of Hormuz.