The FTSE 100 fell on Wednesday as tensions in the Middle East took a turn for the worse overnight amid reports of attacks on tankers in the Strait of Hormuz.
The reports dampened yesterday’s improving sentiment, and the FTSE 100 had lost 0.3% at the time of writing.
“Positivity around Tuesday’s record-breaking session on Wall Street, with the S&P hitting new highs, failed to make its way across the Atlantic on Wednesday,” said Russ Mould, investment director at AJ Bell.
“European markets were in the red as the mood music continues to change daily. One minute investors are upbeat, the next they’re not.
Investors seem to have been lulled into a false sense of security about the Middle East. Although strikes in the region have ended for now, there is no official agreement between the US and Iran, with the US President rejecting Iran’s most recent proposals.
“The exuberance which washed over financial markets after energy prices dipped slightly has faded, with renewed attacks in the Middle East demonstrating how a resolution to the crisis remains elusive,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
The risks of higher oil prices to inflation were evident in higher bond yields on Wednesday. The US 10-year rose to 5.3%.
Higher yields resulted in broad selling across FTSE 100 stocks, with more than half of the index in the red at the time of writing.
Financials were hit particularly hard again; Standard Chartered lost 3% while HSBC shed 2.6%.
Utilities companies were among the losers as the sector fell in sympathy with Pennon, which dumped 17% after launching a rights issue to fund infrastructure investment. United Utilities dropped 2.3%, and National Grid dipped 1%.
Shell was up 1% after the oil major announced a Q3 teaser highlighting a strong period driven by higher oil prices. The firm’s rally from under 3,000p in July to 3,683p today largely priced in the goods news on the expansion of refining margins.
“Shell upgraded its third-quarter gas production and implied its trading arm is enjoying another decent quarter following strong gains in Q2,” Russ Mould said.
“Gyrations in the energy market amid ongoing fears about Middle East supply disruptions create the right kind of backdrop for commodity traders to make money.”
JD Sports was the FTSE 100’s top riser as it continued in recovery above 80p.