FTSE 100 Declines and Oil Prices Surge Amid Geopolitical Tensions
The FTSE 100 index experienced a notable decline on Wednesday, closing down 53.37 points, or 0.5%, at 10,154.43. This movement occurred against a backdrop of heightened geopolitical uncertainty, primarily driven by a warning from US President Donald Trump to Iran. Concurrently, the oil price saw a significant increase, with Brent crude quoted at $68.01 per barrel at the London equities close, up from $65.92 late on Tuesday.
Geopolitical Factors Impacting Markets
President Trump's statement that time is running out for Iran to prevent American military intervention has injected fresh volatility into global markets. Iran has rejected negotiations amidst these threats, and its mission to the United Nations warned of an unprecedented retaliation to any US attack. This tension follows recent conflicts, including a 12-day war between Iran and Israel in June, which the US supported, and Iran's deadly crackdown on protests this month. A US naval strike group, described by Trump as an "armada," is currently positioned in Middle East waters, further escalating concerns.
Performance of Other Indices and Currencies
In European equities, the CAC 40 in Paris closed down 1.1%, while the DAX 40 in Frankfurt ended 0.3% lower. The FTSE 250 index also dipped, ending 13.39 points lower at 23,390.63, but the AIM all-share index bucked the trend, rising 7.27 points to 832.09. On the currency front, the pound strengthened to $1.3778 at the London close, compared to $1.3765 on Tuesday, while the euro weakened to $1.1935 from $1.1969.
US Markets and Interest Rate Expectations
Stocks in New York showed slight gains at the time of the London close, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all up 0.1%. Notably, the S&P 500 briefly surpassed the 7,000 milestone for the first time, marking a 15% gain over the past 12 months. The yield on the US 10-year Treasury widened to 4.26% from 4.22%, and the 30-year Treasury yield stretched to 4.87% from 4.82%. Technology stocks were in high demand ahead of earnings reports from Tesla, Microsoft, and Meta Platforms after the market close.
The Federal Reserve is widely expected to leave interest rates unchanged, with Kathleen Brooks, research director at XTB, noting less than a 3% chance of a rate cut priced by the Federal Funds Futures market. Rates are anticipated to remain at 3.5%-3.75%. Brooks expects Fed Chairman Jerome Powell to emphasise flexibility in future rate decisions during his post-decision press conference, stating that policy will be based on the evolving economic outlook.
Corporate and Sector Movements
The rise in oil prices supported major oil companies, with BP up 1.0% and Shell up 1.3%. In London, Endeavour Mining surged 4.3% due to gains in the gold price, while Fresnillo fell 0.6% after lowering its output forecasts for 2026. Burberry dropped 4.7% following mixed results from French peer LVMH, which slumped 7.9% in Paris. Conversely, Boohoo climbed 5.5% after raising its profit guidance amid strong trading at Debenhams and improved performance from Pretty Little Things.
Top risers on the FTSE 100 included:
- Endeavour Mining, up 186.0p at 4,530.0p
- Scottish Mortgage Investment Trust, up 25.5p at 1,235.5p
- Persimmon, up 26.5p at 1,449.5p
- Centrica, up 3.4p at 190.9p
- DCC, up 82.0p at 4,662.0p
Top fallers on the FTSE 100 included:
- Burberry, down 55.0p at 1,115.0p
- Smiths Group, down 86.0p at 2,530.0p
- AstraZeneca, down 372.0p at 13,508.0p
- Rolls Royce, down 32.0p at 1,208.0p
- Airtel Africa, down 9.0p at 351.6p
Global Central Bank Actions and Economic Outlook
In Canada, the Bank of Canada kept interest rates on hold at 2.25%, aligning with market consensus. The bank highlighted that the outlook remains vulnerable to unpredictable US trade policies and geopolitical risks. This follows a period of stability, with rates unchanged in December after a quarter-point cut in November.
Upcoming Economic and Corporate Events
Thursday's economic calendar features trade data from Canada and the US, along with US initial jobless claims and factory orders figures. In the UK corporate sphere, full-year results are expected from lender Lloyds Banking Group, with trading statements anticipated from miners Glencore and Antofagasta, as well as budget airline easyJet.
