Oil Giants Propel FTSE 100 Higher Amid Middle East War Uncertainty
The FTSE 100 index closed up 71.01 points, or 0.7%, at 9,965.16 on Tuesday, lifted by significant gains in oil majors BP and Shell. This rise comes as investors grapple with ongoing uncertainty surrounding the Middle East conflict, which is impacting global markets and economic indicators.
Market Movements and Global Equities
In London, the FTSE 250 ended down 110.89 points, 0.5%, at 21,135.77, while the AIM All-Share was up 0.67 of a point, 0.1%, at 714.09. European equities showed mixed results, with the CAC 40 in Paris closing up 0.2% and the DAX 40 in Frankfurt ending down 0.1%. Across the Atlantic, New York stocks were also mixed: the Dow Jones Industrial Average rose 0.3%, the S&P 500 index was slightly higher, but the Nasdaq Composite fell 0.4%.
Oil Prices and Geopolitical Tensions
Brent oil was quoted at 103.95 US dollars a barrel at the London equities close, up from 102.07 dollars late on Monday. Oil majors provided strong support in London, with BP up 3.5% and Shell up 3.2%. The uncertainty stems from conflicting reports about negotiations between the US and Iran to end the war. While US president Donald Trump pointed to "very good" talks, officials in Tehran denied any discussions, with Tehran's parliamentary speaker accusing Trump of seeking to manipulate financial and oil markets.
Joshua Mahony at Scope Markets commented: "The uncertainty surrounding the possibility of a breakthrough in negotiations means investors are essentially guessing the outcome. The chances of a swift deal remain minimal, with both sides bringing demands the other will likely reject. Essentially all roads lead to oil right now, and as long as Trump can keep crude prices stable, we will see declines in assets like gold and equities minimised."
Economic Impact and Inflation Concerns
The war's impact was evident in economic data. S&P Global's flash UK services PMI business activity index fell to a 6-month low of 51.2 points in March from 53.9 in February, underperforming market expectations. UK businesses reported a hit to customer demand, with optimism falling to the lowest since last June. The flash manufacturing index declined to 51.4 points, though it beat expectations of a sharper fall.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "The war in the Middle East has hit the UK economy in March, stalling growth while driving inflation sharply higher." Manufacturers signalled the sharpest rise in input costs since October 2022, with acceleration in input price inflation the biggest since October 1992. JPMorgan analyst Allan Monks noted the survey is likely to "reinforce the sense that a large inflation shock is coming."
In Europe, the HCOB Flash Eurozone PMI registered 50.5 for March, down from 51.9, indicating slowed growth. Barclays highlighted clear imprints of energy price rises and Middle East tensions, with weaker demand prospects and sharp input price increases.
Currency and Policy Responses
The pound was quoted slightly higher at 1.3394 dollars, while the euro stood at 1.1591 dollars. Gold traded at 4,421.77 dollars an ounce, up from 4,376.19 dollars. The yield on the US 10-year Treasury was flat at 4.38%, with the 30-year also unchanged at 4.94%.
Chancellor Rachel Reeves warned that economic challenges from the Iran war may be "significant," with contingency planning underway for energy bill support. She said work is ongoing for targeted help when the current energy price cap expires in June. Huw Pill, chief economist at the Bank of England, stated policymakers should not use uncertainty as a reason not to act against inflation risks, warning of "upside risks to price stability mounting as a result of events in the Gulf."
Corporate Highlights and Stock Movements
On the FTSE 100, 3i Group rose 2.2% ahead of Action's capital markets day. Citi analysts noted expectations for temporary slowing in like-for-like sales at Action, with inflation reinforcing shifts towards discounted channels. On the FTSE 250, Bellway slumped 18% due to mixed first-half results and war impact concerns, with the housebuilder citing heightened risks to cost pressures and customer demand. Trustpilot fell 17% after Deutsche Bank confirmed a stake sale by Advent Global.
The biggest risers on the FTSE 100 were BP, BT Group, Endeavour Mining, Shell, and Convatec. The biggest fallers included Persimmon, JD Sports, Experian, Kingfisher, and Babcock International.
Looking Ahead
Wednesday's global economic calendar features Australian CPI data and UK inflation figures. Corporate results are due from TT Electronics, Wag Payment Solutions, and Headlam Group. As the Middle East conflict continues, markets remain on edge, with oil prices and inflation expectations driving volatility.
