The FTSE 100 fell below 10,700 on Thursday as UK stocks dropped in line with a broader global equity sell-off amid ongoing concerns about higher oil prices and AI.
Reports that the US and Israel were planning further attacks on Iran while the Houthis hit fuel infrastructure in Saudi Arabia saw Brent oil prices extend gains above $110.
Oil prices above $110 curtailed demand for stocks, and the FTSE 100 was down 0.6% at the time of writing.
“Risk-off sentiment is returning amid high geopolitical tensions and a swirl of worries about financing the AI juggernaut. Even the more defensive Footsie is feeling the heat, as concerns about the chronic energy crunch and the inflationary impact ahead weigh on the index,” said Susannah Streeter, Chief Investment Strategist, Wealth Club.
“Asian markets tanked as semi-conductor stocks sold off as investors turned wary again about the rising costs of borrowing, fuelled by stubbornly high energy prices. The Nikkei closed down 2.2% while South Korea’s Kospi plunged by more than 3%, as the big chip players SK Hynix and Samsung, which account for around 50% of the index due to their huge valuations took a hammering.”
Although the FTSE 100 lacks major AI players, it has become susceptible to sentiment downturns tied to AI fears.
That was evident again on Thursday, when the FTSE 100’s cyclical names were among the hardest hit as investors showed signs of getting fed up with persistent inflation risks.
Mining stocks were again the top fallers as investors dumped shares exposed to global growth, increasingly threatened by higher energy prices.
Fresnillo was the top FTSE 100 faller, dropping 4%, followed closely by Anglo American and Antofagasta.
Sainsbury’s shares fell after it released a trading statement. Sales growth was positive, but concerns about margins and a tough outlook may have driven the 3% decline on Thursday. The lack of a dividend increase may also have discouraged investors.
“And while the company was able to move the lower end of guidance for the full year higher, there were signs of stuttering momentum in the second quarter as like-for-like sales slowed from the first three months of the financial year,” said AJ Bell investment director Russ Mould.
“Sainsbury’s is having to work hard to maintain its profitability and the contrast with Tesco, where margins are improving, will do nothing to dampen speculation about Sainsbury’s pursuing a merger in the sector.
“The clear edge Tesco has on Sainsbury’s is one of scale. With news emerging of Sainsbury’s looking to combine with Morrisons before talks fell apart earlier this year, there may be pressure for it to revive its M&A ambitions.”
Barclays was another company that fell slightly on the day due to fears about what may come. Results were good, but next week’s budget and possible tax on the banks sapped enthusiasm for the stock and the wider sector.
There were some more upbeat updates from the London Stock Exchange and Rentokil Initial but they were not enough to keep the FTSE 100 positive. Rentokil was the top riser, jumping 8%. The London Stock Exchange Group was 4% higher.