The FTSE 100 slipped on Tuesday as Trump’s threats to ramp up attacks on Iran dented sentiment and sent oil prices above $90 per barrel.
The US and Iran traded strikes for the first time in a month over the bank holiday weekend, triggering an inevitable rally in oil prices and souring sentiment.
London’s leading index dropped 0.7% to trade below 10,800.
There is a sense of fatigue creeping into markets around the US/Iran conflict, which shows no sign of ending, and is being exacerbated by a hawkish Fed that now seems intent on hiking interest rates.
“A post-UK Bank Holiday hangover looked inevitable for the FTSE 100 given the losses chalked up across Europe, Asia and the US since the end of last week,” said AJ Bell investment director Russ Mould.
“Government bond yields have renewed their surge as oil prices move back above $90 per barrel, bringing concerns about inflationary pressures back to the fore.
“In a familiar pattern, the hints at diplomatic progress in the Middle East last week have amounted to little as hostilities between the US and Iran instead ramp up once more.”
The net result of rising oil prices is concerns about interest rates, which have ramped up since the Jackson Symposium last week.
“The Fed is increasingly wary about those inflationary pressures, with Chair Kevin Warsh at Jackson Hole on Friday saying that the Fed would have work to do if underlying inflation does not move clearly and sufficiently quickly towards its 2% target,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
“Although he stopped short of giving explicit forward guidance, his comments have still raised expectations of a rate hike in September.”
These filtered through to the FTSE 100’s commodity-related constituents on Tuesday.
Endeavour Mining was the hardest-hit FTSE 100 stock on Tuesday as gold prices slid amid renewed tensions in the Middle East and rising chances of an interest rate hike in the US. Endeavour shares fell by more than 8%.
Fresnillo fell 5%.
Unsurprisingly, BP and Shell were among the best performers of the session as oil prices rose. BP added 4% but remained in the relatively tight range it has resided in over the past month.
Reckitt Benckiser was the FTSE 100’s top riser, jumping over 4%, as investors reacted to a favourable outcome in infant formula legalities.