The FTSE 100 tumbled on Tuesday as oil prices rose amid the ongoing conflict in the Middle East, raising concerns about knock-on effects on growth.
There was almost a sense of complacency in markets yesterday, with the FTSE 100 making measured declines and the S&P 500 closing marginally positive.
However, developments overnight have served as a reality check after Iran’s Revolutionary Guard said they would set any ships entering the Strait of Hormuz ablaze.
Around 20% to 30% of the world’s oil and gas passes through the strait, so any sustained closure could send shock waves through the global economy.
The fear here is that rising fuel prices scupper additional interest rate cuts and even lift inflation to levels that interest hikes enter the narrative.
“Despite an initial sanguine response to the Iran conflict seen on Wall Street on Monday, UK stocks recorded a meaningful drop on Tuesday morning,” said Dan Coatsworth, head of markets at AJ Bell.
“Asian markets were weak as concern grows about rising energy prices, and US futures suggest investors across the Atlantic are also starting to become more alarmed about the situation in the Middle East. The suspension of LNG production in Qatar is a particularly sensitive pressure point and has seen gas prices surge globally.”
The FTSE 100 was down 2.5% at the time of writing.
Although the market is focused on what’s happening in the Middle East, the flow of company earnings continues, and Intertek was the standout FTSE 100 corporate update on Tuesday. Unfortunately for investors, it was for all the wrong reasons.
Intertek shares tumbled after the group missed revenue expectations and only increased dividends by 5.4%. Investors didn’t like what they saw, and shares sank 15%.
Cyclical sectors dragged the index lower with miners Antofagasta, Melten, and Anglo American all falling more than 5%.
IAG was again the top faller as the grounding of flights and rising oil prices due to the war hit sentiment. IAG lost another 6% on Tuesday.
Banks were down heavily, as were the housebuilders.
Declines in Shell reflected souring sentiment on Tuesday, as the oil majors were unable to carve out meaningful gains despite rising oil prices. BP was higher by just 0.1%.
“This could prove to be highly profitable for both Shell and BP’s trading arms with Shell’s optimisation capabilities in LNG transit likely to be in particularly strong demand,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“Shell’s balance sheet strength also leaves it better placed to deal with any prolonged volatility and while BP’s buybacks remain on pause, we’re expecting Shell’s generous payouts are likely to continue this year.”
Smith & Nephew was the top riser with gains of 3.5% as it rebounded from a results-induced selloff yesterday.