The FTSE 100 slipped on Thursday as the storming rally sparked by the ceasefire agreement started to fade.
London’s leading index was trading down 0.3% at 10,578 at the time of writing. Given that the FTSE 100 rallied 2.5% yesterday, today’s losses were minimal but did underscore nervousness about the ceasefire holding.
“The war may be paused, but we expect several effects to linger across four fronts: energy pricing, shipping/logistics, inventories, and market risk premia,” said Lale Akoner, global market analyst.
“Even after a ceasefire, Hormuz does not normalize overnight. Market prices adjust much faster than physical flows, and shipping firms may need time just to regain confidence, with port activity taking about two months to normalize. Inventory rebuilding then takes longer still: energy analysts estimate roughly four months to restore OECD stocks to a more comfortable level.”
Israeli attacks on Lebanon overnight also kept tensions high as Iran labelled them a violation of the ceasefire terms. These attacks and Iran’s response may have contributed to oil prices rising again.
Oil prices have proved to be a sense check throughout the Middle East war, with Brent and WTI often decoupling from the emotional swings in equity markets. Investors will have one eye on the rebound in oil prices on Thursday and may be concerned that yesterday’s euphoria was a little premature, with inflation still a big risk over the coming months.
While the relationship between oil and the FTSE 100 index has varied since the 28th February, there is a clear inverse relationship between oil prices and several of the FTSE 100’s interest-rate-sensitive sectors, such as housebuilders and retailers.
A rebound in WTI and Brent to the $97-$98 region on Thursday saw this relationship kick in again as Barratt Redrow, Persimmon, Burberry and Marks & Spencer all fell.
Mortgage rates are reportedly little changed despite the ceasefire being called, which will dampen bargain hunters’ enthusiasm for housebuilders in the near term.
Compass Group fell 3% and erased all of yesterday’s gains. Fresnillo was another notable faller as silver prices faded from yesterday’s rally.
DCC shares rose 1.9% after Exane BNP upgraded their rating to outperform from neutral.
Standard Life was the FTSE 100’s top faller due to the stock trading ex-dividend. BP was the FTSE 100’s top riser with oil prices resuming their ascent.