The FTSE 100 slipped on Tuesday after the US President said the Middle East ceasefire was on ‘life support’ and hurtled towards political instability.
Even the most optimistic UK investors will be slightly concerned about what’s happening on Tuesday, as reflected in the FTSE 100, which was trading down 0.6% at the time of writing.
“Drama and turmoil on both sides of the Atlantic helped put the FTSE 100 firmly on the back foot on Tuesday,” said Dan Coatsworth, head of markets at AJ Bell.
“Comments from Donald Trump that the Iran-US ceasefire was ‘on life support’ saw investors wobble in Asia and Europe – with the sell-off in the UK market exacerbated by domestic political events.
“The 30-year gilt yield, which is sensitive to political gyrations, extended yesterday’s gains to briefly top 5.8% as bond markets react to the increasingly perilous position of Prime Minister Keir Starmer.”
The bond market is a UK-centric problem, underscored by the FTSE 250 falling 1% on Tuesday, and it may worsen if the government is thrown into disarray by a leadership contest.
“We could see a blowout in longer-dated gilts if this turns into a dogfight– political, fiscal and inflationary risks will rise,” said Saxo UK Investor Strategist, Neil Wilson.
“Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier.”
These concerns were most felt in FTSE 100 banks NatWest, Barclays, and Lloyds – all were trading down by more than 4%.
The risk of potential political turmoil hit the pound, which in turn provided support for the FTSE 100’s overseas earners and offset losses elsewhere.
BATs, Unilever, Imperial, Diageo, Reckitts and Haleon were all higher on the day. There was an element of risk aversion and safe haven seeking in some of these gains.
Intertek was the FTSE 100’s top riser after EQT upped its cash offer to 6,000p from 5,800p. The board is considering the revised offer.