FTSE 100 falls as higher oil prices add to investor worries

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Stocks in London fell on Wednesday as elevated oil prices and bond yields pushed investors to the sidelines, with looming US jobs data adding to the cautious mood.

The FTSE 100 index closed down 32.83 points, 0.3%, at 10,756.45. The FTSE 250 ended down 197.23 points, 0.8%, at 24,324.06, and the AIM all-share closed down 6.05 points, 0.8%, at 790.01.

Dan Coatsworth, head of markets at AJ Bell, said financial markets are being brought down by a “cocktail of worries around the scale of interest rate hikes that could be around the corner, geopolitical concerns, and fears that economic growth expectations might have to be revised down”.

With oil prices “stubbornly high”, investors are now staring directly into the eyes of an “inflation monster” that threatens to become stronger unless action is taken, Mr Coatsworth said.

“Central banks typically raise interest rates to fight inflation, and market expectations for the scale of rate hikes continue to evolve,” he added.

In European equities on Wednesday, the CAC 40 in Paris closed down 0.3%, while the DAX 40 in Frankfurt ended 0.5% lower.

In New York, equity markets rallied. The Dow Jones Industrial Average was up 0.6%, and the S&P 500 was 0.5% higher, as was the Nasdaq Composite.

Oil prices climbed after Iran launched a wave of attacks on US sites across the Middle East as violence surged after an extensive American bombardment.

Iran’s Revolutionary Guards announced attacks on US bases in Jordan, the UAE, Kuwait, Bahrain and Iraq’s autonomous Kurdistan region, in the six-month conflict’s heaviest exchange in weeks.

US President Donald Trump had warned earlier of “much harder and higher” attacks if Iran retaliated to the US strikes, which Iran’s military and state media said killed 18 people.

Brent crude for November delivery was quoted at 95.40 dollars a barrel at the time of the London equities close on Wednesday, up from 92.48 at the time of the London equity close on Tuesday.

“Crude oil is trading near an area of resistance which it has to clear to make further gains. Otherwise, it may need to back and fill for a while to gather sufficient momentum for a push to fresh cycle highs,” said David Morrison, senior market analyst, at Trade Nation.

The higher oil prices kept pressure on bond yields.

The yield on the US 10-year Treasury was quoted at 4.79%, widening from 4.77% on Tuesday. The yield on the US 30-year Treasury was quoted at 5.27%, up from 5.25%.

In the UK, the yield on 10-year gilts stretched to 5.24% from 5.22% on Tuesday, while the 30-year hit 5.87%, up from 5.85%.

Kathleen Brooks, research director at XTB, said this is a “deeply uncomfortable” fiscal position for the UK.

“Added to this, the interest rate futures market is pricing in more than three rate hikes between now and July, which could add significant pain to households. The first hike could be in November, with UK interest rates expected to reach 4.26% by February next year,” she noted.

The pound was quoted at 1.3505 dollars on Wednesday, down from 1.3527 on Tuesday. Against the euro, sterling fell to 1.1648 euro from 1.1669.

The euro was little changed at 1.1594 dollars from 1.1593.

Ahead of Friday’s US non-farm payrolls report, figures from payroll processor ADP showed US private-sector employers added 38,000 jobs in August, slowing from 46,000 in July and falling short of the FXStreet-cited forecast of 47,000.

On the FTSE 100, InterContinental Hotels Group led the gainers, up 3.1%, after UBS raised the Holiday Inn owner to ‘buy’ from ‘neutral’.

“We continue to view IHG as one of the sector’s most dependable long-term growth stories, supported by a large development pipeline, expanding fee revenues and significant buyback capacity,” UBS analyst Jarrod Castle said in a research note.

NatWest gained 0.6% as Morgan Stanley upgraded the lender to ‘overweight’ from ‘equal weight’.

Morgan Stanley believes strong growth in Commercial & Institutional lending at NatWest “has legs”, while “we have gained confidence that consensus other income is achievable”.

But a downgrade by Citigroup weighed on Pearson, which lost 2.2%.

Analyst Ciaran Donnelly lowered the London-based education materials publisher to ‘neutral’ from ‘buy’ following an around 40% rally in the shares since the February low.

“We move to neutral as the recent re-rating has increased the hurdle for further outperformance and we see limited upside to consensus in the short term,” he wrote.

The biggest risers on the FTSE 100 were InterContinental Hotels Group, up 4.9p at 160.8p, Fresnillo, up 58.0p at 3,074.0p, Endeavour Mining, up 85.0p at 4,569.0p, Convatec, up 3.8p at 233.6p and Standard Chartered, up 35.0p at 2,204.0p.

The biggest fallers on the FTSE 100 were Kingfisher, down 11.8p at 297.5p, Computacenter, down 190.0p at 5,315.0p, Metlen Energy & Metals, down 1.5p at 46.6p, Experian, down 94.0p at 2,876.0p and London Stock Exchange Group, down 268.0p at 8,568.0p.

Thursday’s global economic calendar has a batch of composite PMI readings. US initial jobless claims data, US trade figures and the ISM services PMI are also scheduled.

Thursday’s UK corporate calendar has half year results from savings and investment business M&G, and a trading statement from airline and tour operator Jet2.

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