The FTSE 100 outperformed European peers on Thursday as higher oil prices continued to weigh on blue chips.
In London, the FTSE 100 index ended down 16.90 points, 0.2%, at 10,441.60. It had earlier traded as low as 10,367.25.
The FTSE 250 fell 92.87 points, 0.4%, to 23,943.88, and the AIM all-share shed 5.31 points, 0.7%, to 770.67.
Fresh oil price strength came as The Atlantic reported the White House has asked the Pentagon to look at strike options on Iranian targets. Citing two administration officials, The Atlantic reported that strikes could be made ahead of the US midterm elections on November 3.
A separate report from Axios said the Pentagon called on Central Command to finalise preparations for a resumption of combat operations in Iran.
Meanwhile, Yemen’s Houthis targeted Riyadh airport with missiles on Thursday and warned staff at oil facilities in Saudi Arabia to leave to avoid being targeted as hostilities escalate.
On top of this, David Morrison, analyst at Trade Nation, noted that tropical storm Isaias is building near the Gulf of Mexico.
“Both Chevron and Shell were reducing offshore production as a result, adding to a 25% oil production shutdown across the region,” he said.
As a result, Brent oil was quoted at 105.57 dollars a barrel on Thursday, up from 101.77 dollars late on Wednesday.
“Geopolitics, politics and earnings risks are colliding,” said Kathleen Brooks, research director at XTB.
She noted the higher oil price is pressuring the bond market and causing stocks to sell off.
In European equity markets on Thursday, the CAC 40 in Paris ended down 0.5%, while the DAX 40 in Frankfurt slid 1.2%.
In New York, markets were also lower. The Dow Jones Industrial Average was down 0.4% at the time of the closing bell in London, as was the S&P 500. The Nasdaq Composite was 0.6% lower.
The yield on the US 10-year Treasury was quoted at 5.34% on Thursday stretched from 5.32% at the same time on Wednesday. The yield on the US 30-year Treasury was quoted at 5.66%, narrowed from 5.69%.
XTB’s Ms Brooks said bonds are set to remain volatile leading up to this month’s central bank meetings.
“The market is still paring back expectations for an October rate hike, they now stand at 21%. However, will the recent weakness in payrolls and moderation in the PCE growth rate be enough to keep the Fed on hold for the long term?
“The answer to this question is vital for markets, especially as AI companies continue to issue debt to fuel their expansion plans. The more it costs to do this, the more important the pay-off and the impact on global stock markets.”
Minutes from the September Federal Open Market Committee, released on Wednesday, showed Fed officials expect one more interest rate rise this year.
Barclays analyst Marc Giannoni said the minutes suggest a return to risk management, alongside growing concern about inflation persistence and higher neutral rates.
“They reinforce our expectation of one additional hike this year, even though subsequent data and Fed communications signal patience in October,” he added.
On Thursday, Christopher Waller, a member of the Fed’s board of governors, said he expects the central bank to hike more if the economy moves as expected.
“When the first inflation reading for August came in hot just before the FOMC’s September meeting, it was impossible to deny that inflation was still too high and not making sufficient progress towards our target,” he said at the Istanbul Economic Forum hosted by the Turkish central bank.
“If the economic data continues to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal. But there is some flexibility about when those hikes will occur. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time.”
The pound was quoted at 1.3214 dollars on Thursday, up from 1.3210 dollars at the same time on Wednesday. Against the euro, sterling eased to 1.1799 euros from 1.1807 euros.
The euro firmed to 1.1198 dollars from 1.1187 dollars. Against the yen, the dollar was trading at 158.26 yen, up from 158.13 yen.
On the FTSE 100, well-received results boosted food retailer Tesco, up 5.2%, and gave a boost to sector peer J Sainsbury, up 1.5%.
The grocer raised the bottom-end of profit guidance and increased the size of its share buyback as it delivered better-than-expected half-year results.
Chief executive Ken Murphy said: “Against an uncertain external backdrop, we have continued to invest in giving customers the very best value for money.”
For the financial year as a whole, Tesco now expects adjusted operating profit between £3.15 billion and £3.30 billion, the bottom end of guidance raised from £3.00 billion. It continues to expect free cash flow of between £1.5 billion and £2.0 billion, in line with its medium-term guidance range.
Dan Coatsworth, head of markets at AJ Bell, thinks Tesco has been clever in laying out its stall.
“It has taken the dual-pronged approach of cutting prices where possible to appeal to the cost-conscious shopper and stop Aldi and Lidl eating its lunch. At the same time, Tesco has increased its range of premium items under the Finest label, thereby striking a chord with individuals who can afford fancier foods. That’s helped to win customers from Waitrose.”
Tobacco manufacturer Imperial Brands, whose stable of brands includes Davidoff and Gauloises cigarettes, Rizla rolling paper and blu e-cigarettes, climbed 5.1% as it said it is eyeing a new £1.5 billion buyback scheme.
The share buyback news came with an upbeat trading statement, in which the company hailed the “strong momentum behind our transformation”.
The FTSE 100 listing reported that it is tracking in line with guidance for the financial year ended in September.
Oil price strength supported BP, up 4.1%, and Shell, up 3.6%, while IG Group rallied 1.4% as it gave a presentation related to the acquisition of Underdog.
Standard Life led the FTSE 100 fallers, down 3.8%, as Edinburgh-based wealth and asset manager Aberdeen sold 52 million shares in the London-based retirement savings provider, while advertiser WPP ebbed 3.3% as it traded ex-dividend. Aberdeen rose 1.1%.
On the FTSE 250, Unite Group fell 5.1% after its trading update. Analysts warned that falling property valuations and the challenges of disposing of lower-performing assets could continue to weigh on the student accommodation provider.
Gold was quoted at 4,116.87 dollars an ounce, up from 4,109.52 dollars.
The biggest risers on the FTSE 100 were Tesco, up 24.60p at 500.40p, Imperial Brands, up 126.00p at 2,614.00p, BP, up 22.80p at 584.80p, Shell, up 132.50p at 3,780.50p and Autotrader Group, up 15.10p at 485.90p.
The biggest fallers on the FTSE 100 were Standard Life, down 33.00p at 838.50p, Lion Finance Group, down 460.00p at 12,370.00p, WPP, down 12.70p at 372.30p, GSK, down 55.00p at 1,735.50p and International Consolidated Airlines Group, down 12.80p at 420.00p.
There are no significant events scheduled in Friday’s local corporate calendar.
Friday’s global economic calendar has unemployment data in Canada and the Michigan consumer sentiment index in the US.
Contributed by Alliance News
