The FTSE 100 started Friday’s session deep in the red after Israel launched retaliatory strikes against Iran overnight.
The next phase in escalation in the Middle East inevitably resulted in higher oil prices and lower stocks.
However, Iran seemed to downplay the attacks, presumably to avoid having to again respond to Israel and risking all-out war. Although there were reports of damage to Iranian military facilities, it was minor, suggesting Israel itself chose not to hit Iran too heavily to avoid a wider conflict.
“The FTSE 100 has swung to the downside today, as reports of an Israeli attack on Iran increase geopolitical uncertainty. On a more UK-specific level, retail sales were unexpectedly flat in March, according to ONS data,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
S&P 500 futures were down more than 1% overnight but gradually recovered as details of the strikes emerged.
Oil prices were higher but didn’t break above this week’s highs. This reflects a probable toning down in hostilities but also concerns about global demand.
The FTSE 100 has demonstrated its defensive nature this week and outperformed other major indices, particularly the US. Weightings to mining and oil stocks have helped support the index as commodity prices rose.
However, extrapolating one week’s returns into the future is challenging, given that this week’s trade was driven by heightened geopolitical tensions, which eventually subsided. Utilities have done well this week, but that’s nothing to get excited about as it was mainly a risk aversion trade.
The FTSE 100 may outperform US indices if oil prices break above $100 and if China shows signs of life. It must be noted this may be only be relative outperformance if equity markets are dragged lower by concern about developed market growth and earnings.
UK retail
JD Sports was the biggest faller on Friday after UK Retail sales disappointed in March, raising concerns about the health of the UK’s consumers. Ocado, B&M and Marks & Spencer were all among the fallers.
“On a more UK-specific level, retail sales were unexpectedly flat in March, according to ONS data. This was worse than expected, and included a decline in food store sales. This doesn’t bode too well for some names in the grocery industry, with corporate updates expected next week. The data also speaks to growing concerns about resilience in the wider retail sector. Mid-market names are in a very difficult position and pressure isn’t abating,” Lund-Yates said.
Investors will look forward to earnings updates from major FTSE 100 companies next week including Sainsbury’s and Lloyds.