The FTSE 100 made a measured start to the week after yet another flare-up in tensions in the Middle East over the weekend sent oil prices marginally higher.
Although the US conveniently announced that the fighting had ceased just before futures markets opened yesterday, a series of strikes by both the US and Iran over the weekend served as a reminder that the free flow of oil from the Strait of Hormuz could be some way off.
Brent oil rose just 0.5%, but it was enough to set a cautious tone in equities. The FTSE 100 was trading 0.1% higher at the time of writing.
“All eyes are back on the Middle East after renewed tensions despite efforts to bring the war to an end,” said Russ Mould, investment director at AJ Bell.
“Brent crude oil nudged up 0.4% to $72.26 per barrel after a weekend of fighting. The scale of the price hike wasn’t as bad as it could have been, helped by reports the US and Iran would stand down once again. Investors will want greater reassurance that the ceasefire is lasting and not a flash in the pan.
Babcock was the FTSE 100’s top faller, losing 6%, after the US and Iran agreed on another ceasefire. The drop does seem drastic, given the short duration of the recent spate of strikes.
BT earned a place among the top risers after announcing a joint venture with Verizon focused on companies’ international businesses.
“The two companies are combining their international operations, no doubt with the hope this joined-up approach will appeal to multinational organisations looking to streamline their supplier roster. It will create opportunities to achieve cost efficiencies and economies of scale,” Russ Mould said.
Interest rate-sensitive stocks felt the pressure of Middle East tensions, and the Housebuilders – the FTSE 100’s foremost proxy for the impact of the war on the UK economy – were trading negatively.
Barratt Redrow lost around 2% and Persimmon 2.4%.
Lion Finance Group was the FTSE 100’s top riser, adding 3% on early trading on Monday after a broker upgrade.
Attention may shift to interest rates this week as central bankers meet and investors ponder the lasting impact of the Middle East conflict, even if the Strait of Hormuz resumes normal flows soon.
“The prospects of higher borrowing costs are concentrating minds, particularly in the US, given how higher rates affect the value of future earnings, upon which so many heady tech valuations are based. Today though investors appear to be taking a glass-half-full approach, with stocks on Wall Street set for a rebound,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.