The FTSE 100 was firmly on the front foot on Wednesday despite Brent oil prices nearing $100 amid an escalation in the Middle East.
Brent crude surged 4% to trade at $95.28 on reports that the Houthis reportedly threatened to attack shipping lines in the Red Sea, adding another dimension of risk to a rapidly deteriorating situation in the Middle East. Needless to say, Iran and the US were still trading blows and showed little sign of returning to the negotiating table.
But for all the risk this poses to inflation and interest rates, the FTSE 100 jumped 0.8% towards the highest level since the start of the conflict in March.
This was largely down to a better-than-expected reading for UK inflation, which helped offset concerns about recent geopolitical developments.
“UK inflation has eased to 2.6% in June, with some of the heat coming out of rapidly rising prices, offering some short respite for households and pushing the threat of interest rate hikes a little further into the distance,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
“The fall was steeper than some forecasts, but it’s still above the bank’s 2% target.”
Investors may see today’s inflation read as an indicator of how quickly inflation can fall back and discount the risks posed by the latest Middle East flare-up. It will be interesting to see how UK stocks perform if oil breaks back above $100.
Oil majors BP and Shell were, of course, higher on the session, but it was a broad rally, with around 70 of the FTSE 100’s constituents trading higher at the time of writing.
SEGRO was the FTSE 100’s top riser, adding 4%, as the warehouse operator received a revised ‘best and final’ takeover offer from Prologis of 1,031.7p. SEGRO shares were trading at 909p at the time of writing.
Precious Metals miners Endeavour and Fresnillo were among the top risers as gold prices rose. Fresnillo was also given a boost from a 13.8% increase in gold production in the first quarter.
As the session progresses, attention will shift to the US and a raft of earnings from US tech companies that could set the tone for trade for the rest of the week.
“European markets took a moment to catch their breath ahead of the all-important US tech earnings season,” said Russ Mould, investment director at AJ Bell.
“A pullback in chip stocks following a storming run earlier this year has left investors hungry for an update on AI-related demand and to see if all the big investments into tech infrastructure are paying off. Alphabet reports tonight, with Intel following tomorrow and Microsoft, Meta, Lam Research, Arm and others next week.
“Until we get a clearer picture of tech outlook statements and what management are seeing for the rest of the year and into 2027, it’s possible that markets will continue to tread water.”