The FTSE 100 fell on Wednesday after the Middle East conflict erupted overnight, with Donald Trump saying a vulnerable ceasefire with Iran is over.
The US reportedly hit multiple targets in Iran following strikes on commercial ships in the Strait of Hormuz. Iran responded by launching attacks on its neighbours.
Oil prices rose, and stocks fell as a result.
Brent oil was trading 3.5% higher at $76.45 at the time of writing. Although the move knocked equities, the jump in oil prices could be considered measured, given where oil traded during the depths of the most recent conflict.
This may be down to market desensitisation to the conflict, but also to the fact that these flares are now tending to be short-lived.
Nonetheless, images of the Middle East engulfed in flames once more hit investor sentiment on Wednesday, and the FTSE 100 fell 1.4%.
”A surge in oil prices has sparked worries about persistent inflation, with the Middle East tinderbox reigniting. Downbeat sentiment is spreading, with the FTSE 100 sharply lower and European indices deep in the red,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
There were few surprises in the top movers on Wednesday.
BP and Shell both rose on the back of higher oil prices, while consumer-facing stocks such as Kingfisher and Games Workshop found a place near the bottom of the leaderboard.
Housebuilders have proved to be a proxy for inflation concerns during the US/Iran war, which played out again on Wednesday, as Barratt and Redrow sank 4.7% to the bottom of the leaderboard.
Housebuilders were also hit by more bad news from stricken Vistry and forecasts of a loss in the first half of the year. A downbeat assessment of the housing market would have also knocked sentiment in the sector.
“Vistry’s shares fell on a gloomy trading update and news that chief financial officer Tim Lawlor was jumping ship,” said Dan Coatsworth, head of markets at AJ Bell.
“Investors have been getting jumpy about the state of the housebuilding and broader construction industry. Raw material and labour cost pressures have haunted the sector of late, and the prospect of possible interest rate hikes is bad news for mortgage affordability and housing sales.”