European Stocks Sink Amid Middle East Uncertainty
Shares in London and across Europe nursed heavy losses on Monday, as US and Israeli strikes on Iran sparked fears of a drawn-out conflict in the Middle East. The FTSE 100 Index ended down 130.44 points, or 1.2%, at 10,780.11, while the FTSE 250 dropped 333.51 points, or 1.4%, to 23,423.64. The AIM All-Share closed 3.64 points lower, or 0.4%, at 815.89.
Conflict Escalates with Regional Impact
On Monday, the Israeli military announced new strikes on Tehran, marking the third day of a joint US-Israeli assault. Simultaneously, explosions rocked Lebanon’s capital, Beirut. US President Donald Trump’s administration vowed to stay the course, with Defence Secretary Pete Hegseth stating that while no US troops were yet on the ground in Iran, they would "go as far as we need to go." The conflict, which began with the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei, has engulfed the region, with reports of explosions in Dubai, Bahrain, Iraq, and other areas.
Market Reactions and Analyst Insights
Barclays analyst Emmanuel Cau commented, "Given the scale of Iran’s retaliation, an unclear endgame to the conflict, and uncertainty around succession plans following Khamenei’s death, we think markets may continue to trade defensively in the near term." He added that the situation remains highly fluid, with potential risks to energy supplies, sea freight in the Strait of Hormuz, air travel, and tourism.
In European equities, the CAC 40 in Paris closed down 2.2%, and the DAX 40 in Frankfurt ended 2.6% lower. In New York, the reaction was more muted following heavy falls on Friday, with the Dow Jones Industrial Average down 0.4%, the S&P 500 index 0.2% lower, and the Nasdaq Composite slightly higher.
Commodities and Currency Movements
The crisis saw oil prices soar, boosting BP, up 2.5%, and Shell, up 2.1%, in London. Brent oil traded higher at $77.92 a barrel on Monday afternoon, up from $72.71 at the same time on Friday. David Morrison at Trade Nation noted, "Investors scrambled to cover shorts and get long after the joint US-Israeli attacks." He highlighted the Strait of Hormuz as a key concern, as it is a potential chokehold for around 20% of the world’s crude oil and natural gas deliveries.
Safe-haven gold firmed to $5,288.00 an ounce on Monday from $5,235.52 on Friday. The dollar gained traction, with the pound lower at $1.3360 on Monday afternoon from $1.3458 on Friday, and the euro down at $1.1672 from $1.1818. Against the yen, the dollar traded higher at 157.73 yen, compared with 156.05 yen. The yield on the US 10-year Treasury widened to 4.05% from 3.98%, and the 30-year Treasury yield stretched to 4.70% from 4.64%.
Sector-Specific Impacts on the FTSE 100
Events in the Middle East dominated the risers and fallers list on the FTSE 100. Aside from oil majors, defence contractors BAE Systems and Babcock International rose 6.1% and 1.7% respectively. Citi analyst Charles Armitage explained that BAE Systems is most exposed to any upward moves in US defence spending, with 50% of sales stateside.
However, travel and hotel stocks suffered, facing higher fuel costs and travel disruption. British Airways owner International Consolidated Airlines fell 5.5%, easyJet eased 3.0%, Holiday Inn owner Intercontinental Hotels Group dropped 4.2%, cruise operator Carnival slumped 8.0%, and travel retailer WH Smith shed 7.9%. Informa also fell 4.4%, with Panmure Liberum noting that about a third of its live events business is exposed to the Middle East region.
Burberry fell 4.7% on fears of lower spending on luxury items amid travel disruption and a possible economic hit. Analysts at RBC Capital Markets said they expect "luxury stocks to be under pressure given luxury demand typically requires a 'feel good' backdrop, supportive consumer confidence, positive wealth creation, and unabated traveller flows."
Corporate and Economic Developments
Beazley gained 1.9% as it announced agreed terms for an £8.2 billion takeover from Zurich Financial Group, accepting a 1,335 pence per share offer, including a 25p per share dividend. Economic data on Monday showed UK mortgage approvals unexpectedly declined in January to 59,999, the lowest since January 2024 and below the consensus of 62,000.
Ahead of Tuesday’s spring statement, Chancellor Rachel Reeves reiterated a commitment to move to one fiscal event per year. Panmure Liberum chief economist Simon French praised this move, stating it reduces uncertainty and avoids unnecessary tinkering with the economy.
Market Leaders and Laggards
The biggest risers on the FTSE 100 were BAE Systems, up 129p at 2,241p, Airtel Africa, up 11.2p at 360.2p, Bunzl, up 52p at 2,246p, Sage Group, up 18.2p at 840p, and BP, up 10.2p at 487.85p. The biggest fallers were International Consolidated Airlines, down 23.2p at 400.5p, Standard Chartered, down 97p at 1,735p, JD Sports, down 4.1p at 77.88p, Hikma Pharmaceuticals, down 65p at 1,249p, and Burberry, down 54.5p at 1,108.5p.
Tuesday’s global economic calendar includes the UK spring statement and eurozone CPI figures, with corporate results expected from gold miner Fresnillo and bakery chain Greggs.
