The FTSE 100 was lower on Monday after the potential US/Iran peace agreement was dealt a blow by a US strike on an Iranian ship that approached its blockade.
We ended last week on a high, driven by optimism that talks between the US and Iran would soon see the uninterrupted flow of oil through the Strait of Hormuz.
But these hopes were dashed over the weekend after Iran said it would close the Strait again, and the US struck and seized an Iranian ship testing their blockade.
Oil prices jumped in early trading on Monday, with Brent rising 5% to $95 per barrel. Higher oil prices fed through into weakness in the FTSE 100, which was down 0.6% at the time of writing.
“It appears last week’s market enthusiasm over the Strait of Hormuz reopening may have been premature,” said AJ Bell investment director Russ Mould.
“Events over the weekend have left the ceasefire between Tehran and Washington looking as fragile as ever.
“The Strait was open for just a day before the US seizure of an Iranian vessel. The continuing blockade of the country’s ports over the weekend created a cloud of uncertainty over whether the next round of peace talks will go ahead and saw shipping from the region disrupted once more.”
Although developments over the weekend will be a kick in the teeth for equity bulls, they may be encouraged by the diminishing impact of negative headlines. Given the volatility we saw in March, a 0.6% drawdown in the FTSE 100 on Monday, which is around 1,000 points above March’s intraday lows, won’t be a major concern.
The vast majority of FTSE 100 stocks were down at the time of writing, but only marginally.
It will come as no surprise that higher oil prices led to stronger oil majors and weaker housebuilders and miners on Monday.
BP was the FTSE 100’s top gainer, rising 2.9%, closely followed by Shell, which added 2.5%.
Miners and housebuilders have become the proxy for good and bad news coming out of the Middle East and were lower again on Monday as relations between Iran and the US took a step backwards.
Antofagasta was the top faller, losing 4.8% as Persimmon and Barratt Redrow faded from last week’s rally. Persimmon was down by 3.4% at the time of writing.