The FTSE 100 experienced a volatile start to the week, initially tumbling into the red as geopolitical tensions in the Middle East escalated. Overnight, Israel and Iran exchanged fire, testing the fragile ceasefire agreement reached in April. However, the London index staged a recovery by lunchtime after Iran announced it was halting military operations against Israel, following calls from former US President Donald Trump for both sides to cease hostilities.
Market Performance
London's blue-chip index opened 0.4% lower at 10,326.47 points, but later edged into positive territory, rising 29 points to 10,392.45, a gain of 0.3%. European markets also opened lower, with Germany's Dax falling 0.8% and France's Cac 40 dropping 0.6%. In Asia, steep losses were recorded: Japan's Nikkei 225 fell 3.8%, while South Korea's Kospi tumbled more than 8%, triggering circuit breakers.
Oil Prices Surge
Oil prices jumped sharply on Monday morning. Brent crude, the international benchmark, rose by $3.50 to $96.59 per barrel, while US crude surged $3.48 to $94.02 per barrel. The increase, which reached around 5%, remained below the $100 mark and well short of the $120 peak seen in April. Analysts attributed the rise to renewed fears of supply disruptions in the region.
Richard Hunter, head of markets at Interactive Investor, commented: "The inevitable pressure on Asian markets was exacerbated by news that Israel had launched airstrikes on Iran, despite earlier calls for restraint. Oil prices rose by more than 4%, further underlying the inflationary pressures which much of the world will face in the coming months."
Geopolitical Background
The ceasefire agreement struck in April between Iran and Israel had been fragile, with multiple violations. On Saturday, the US military intercepted four Iranian "one-way attack drones" headed toward the Strait of Hormuz, prompting Iran to launch ballistic missiles at US military bases in Kuwait and target US Navy facilities in Bahrain. In response, Israel conducted airstrikes against Iranian military targets early Monday.
Prime Minister Keir Starmer expressed deep concern over the latest violence, acknowledging its impact on the UK. Former President Donald Trump, in an interview with Fox News, said he was "not happy" about Israel's strikes and urged both sides to return to negotiations.
Tate & Lyle Takeover
In corporate news, Tate & Lyle, the historic UK sweetener and ingredients firm, agreed to a £2.7 billion takeover by US rival Ingredion Incorporated. The company's shares soared nearly 13% on the announcement, providing a boost to the FTSE 100.
Susannah Streeter, chief investment strategist at Wealth Club, noted: "The spectre of high interest rates has seen investors finally take fright, and the slide is being exacerbated by renewed Middle East conflict. The prospect of borrowing costs staying higher for longer, if oil prices remain elevated, has shattered the optimism which had pushed indices to record highs."
International Monetary Fund managing director Kristalina Georgieva warned: "I am worried that we are not completely internalising yet that this is how the world is going to be. We are not going to get to a place where shocks are gone."
