The FTSE 100 closed lower on Tuesday, with gains in oil stocks offset by caution ahead of US inflation data and weakness in the insurance sector. The index closed down 18.31 points, or 0.2%, at 10,844.19.
The FTSE 250 ended up 55.21 points, or 0.2%, at 24,799.75, while the Aim All-Share closed up 3.19 points, or 0.4%, at 799.57.
Oil prices push higher on Middle East tensions
Oil prices pushed up once more, touching 90 dollars (£66) a barrel early in the session, with the US and Iran appearing to make little progress towards a deal to reopen the Strait of Hormuz. A hopeful development saw Pakistan’s defence minister state the two countries are “close to some sort of arrangement” over the key shipping route.
“Things are shaping up in favour of peace,” Khawaja Asif told reporters in Islamabad on Tuesday, without giving details of any breakthrough. The more upbeat statement came after US President Donald Trump appeared to harden his stance on Monday, saying Tehran should pay reparations for those killed in attacks linked to the Islamic Republic as well as in domestic protests.
Brent oil for October delivery traded higher at 88.22 dollars a barrel on Tuesday afternoon, from 86.35 dollars late on Monday. The gains saw oil majors and index heavyweights BP and Shell in the green, up 2.2% and 1.8% respectively.
US inflation data in focus
Investor attention is switching to Wednesday’s US inflation data which, after Friday’s soft US jobs report, could further reduce fears of a Federal Reserve rate hike. “We expect US rates and the USD to react more to a downside print than to an equally sized upside print,” said Bank of America analysts Alex Cohen, Stephen Juneau and Meghan Swiber.
“While an upside print should put the September Federal Open Market Committee firmly in play, the decision would still likely hinge on August data, given Chair Warsh’s apparent reluctance to hike. Conversely, a soft print would all but rule out a September hike.” BofA forecast headline CPI likely rose by a “modest” 0.1% on-month and 3.4% on-year in July. For core CPI, it forecast a 0.20% on-month increase and 2.5% on-year, which would be the lowest reading since January.
David Morrison, senior market analyst at Trade Nation, noted the probability of at least one 25-basis point rate hike from the Federal Reserve before year-end remains extremely high at around 80%. “Investors are calculating that the Fed is far more worried about oil-led inflation than it is about underlying weakness in the economy which is showing up in a rapidly deteriorating labour market. Something has got to give. Could it be that the market suddenly starts pricing out rate hikes and pricing in rate cuts, in a complete inversion of what happened earlier this year?” Mr Morrison added.
Insurers weigh on FTSE
Back in London, the insurance sector was on the wane. Legal & General was down 3.1% and M&G 3.3% lower, after UBS cut both to “sell”. Goldman Sachs also cut Legal & General to “sell”. UBS said it prefers both Standard Life and Aviva, though shares in the duo fell 3.3% and 1.4%, respectively. Prudential was also in the red, down 2.9%, and Admiral fell 2.1%.
Noting L&G’s recent share price strength, UBS analyst Nasib Ahmed said the higher valuation potentially leads to “greater scrutiny on growing risk”. In Mr Ahmed’s view, these risks include increased competition, a falling solvency ratio and distributable earnings, high sensitivity to credit events, and a low take-out risk. At M&G, Mr Ahmed sees the around 6% 2028 forecast yield as no longer attractive on a relative basis. The broker also flagged potential constraints to shareholder distributions because of distributable earning headwinds within M&G’s insurance business.
Leading the blue-chip fallers, Spirax fell 5.6% as an unchanged outlook weighed on shares in the thermal energy and fluid technology company. AJ Bell analyst Dan Coatsworth said: “Investors were disappointed by the lack of upgrades to earnings guidance.” JPMorgan analyst Chitrita Sinha said the STS division margin miss also attracted attention on the earnings call but felt the share price was overdone. “The STS miss has been a focus this morning and on the call management explained that order momentum has been picking up,” Ms Sinha said. “The Middle East also contributed negatively to STS, which means the underlying growth was even better. Management is confident on the H2 STS margins given the visibility of shipments that were pushed into H2, lower investments than in H1 and IP growth which should accelerate,” the analyst added.
Market movers and currency updates
The pound traded at 1.3509 dollars on Tuesday afternoon, down from 1.3522 dollars at the equities close on Monday. Against the euro, sterling softened to 1.1706 euro from 1.1708 euro. The euro stood lower at 1.1541 dollars against 1.1549 dollars. Against the yen, the dollar was higher at 159.28 yen, compared to 158.92 yen. The yield on the US 10-year Treasury eased to 4.69% on Tuesday from 4.70% on Monday. The yield on the US 30-year Treasury was flat at 5.24%.
In European equities on Tuesday, the Cac 40 in Paris closed down 0.1%, while the Dax 40 in Frankfurt ended 0.3% higher. Stocks in New York were lower. The Dow Jones Industrial Average was down 0.1%, as was the S&P 500 index, while the Nasdaq Composite fell 0.2%.
Gold traded at 4,376.20 dollars an ounce on Tuesday, up from 4,350.91 dollars on Monday. The biggest risers on the FTSE 100 were St James’s Place, up 36.5p at 1,176.5p, Compass, up 0.91p at 33.03p, Endeavour Mining, up 109.0p at 4,183.0p, Entain, up 12.8p at 554.8p and IG Group, up 30.0p at 1,390.0p. The biggest fallers were Spirax, down 425.0p at 7,225.0p, M&G, down 12.0p at 350.4p, Standard Life, down 30.5p at 902.0p, Legal & General, down 9.6p at 301.6p, and Prudential, down 30.0p at 1,012.5p.
Wednesday’s global economic calendar has inflation figures in the US and Germany. Wednesday’s UK corporate calendar has half-year results from Balfour Beatty and Evoke.
