The FTSE 100 slipped on Monday after US-Iran talks over the weekend ended without a deal, prompting Trump to threaten to blockade the Strait of Hormuz.
Oil prices surged on the news, but the FTSE 100 slipped just 0.4%, suggesting either equity traders believe Trump may chicken out again or that there’s a degree of complacency in trade on Monday after a rip-roaring rally last week for global stocks.
Susannah Streeter, chief investment strategist, Wealth Club, said: “Trump’s high stakes gamble aimed at forcing Iran to bow to his demands has sent oil prices rocketing. It’s sent a fresh jolt of pessimism through financial markets with the FTSE 100 opening lower.”
“Brent Crude, the benchmark, shot up by 8% to 103 a barrel, with prices fluctuating around this highly elevated level. By blockading the Strait of Hormuz, Trump is turning Iran’s chokepoint into a US stranglehold. The prospect of all tankers ceasing transit through this key waterway is making the energy crisis even more acute.”
The blockade is set to come into force at 3.00pm BST today, and markets may become choppier as the session progresses. US futures were pointing to a 0.5% lower open for the S&P 500 at the time of writing.
That said, losses are relatively contained, given the potential risks to the global economy if the US and Iran don’t reach a deal in the near-term.
“The stagflation word is being widely aired once again as geopolitical turmoil threatens to stymie international growth and stoke inflationary pressures,” said AJ Bell investment director Russ Mould.
Talk of stagflation meant it was a familiar story for several interest-sensitive sectors on Monday. Higher oil prices stoked inflation fears, leading to declines for housebuilders and retailers.
Barratt Redrow shares were 2.4% lower as Persimmon lost 2.2%. The pair stormed higher when the ceasefire was announced last week, but the rally is fading, and they’re edging back towards the lows.
Barratt Redrow and Persimmon are the two worst-performing FTSE 100 stocks since the US and Israel attacked Iran.
Blockading the Strait of Hormuz could cause real problems for airlines, which reportedly have only 3 or 4 weeks before jet fuel shortages start to disrupt operations. Naturally, this made airline shares less attractive and IAG shares fell 2.1%.
BP and Shell were among the top risers with oil back around the $100 mark.
Admiral was the FTSE 100’s top riser as the insurer continued its march higher after releasing strong results last month, which have seen the stock immunised against concerns around the Middle East. Admiral was 2.8 higher at the time of writing.