European stocks opened sharply in the red on Friday morning on an escalation in Middle East tensions, while the oil price jumped.
An Israeli strike on Iranian nuclear facilities rocked equities. Oil majors and defence firm BAE shielded the FTSE 100 from a larger decline, though airlines struggled.
The FTSE 100 index traded 50.60 points lower, 0.6%, at 8,834.32. The FTSE 250 was down 237.79 points, 1.1%, at 21,148.90, and the AIM All-Share fell 4.64 points, 0.6%, at 761.24.
The Cboe UK 100 was down 0.7% at 879.34, the Cboe UK 250 fell 1.1% to 18,667.81, and the Cboe Small Companies was down 0.3% at 17,014.59.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt each slumped 1.0%.
The IDF said the attack was in response to the Iranian regime’s ongoing aggression against Israel. Dozens of jets struck military targets in various locations of Iran in a first stage, the IDF said. Iran vowed a ‘strong response’.
‘The armed forces will certainly respond to this Zionist attack,’ said Abolfazl Shekarchi, spokesman for the general staff of the armed forces, adding that Israel ‘will pay a heavy price and should await strong response from the Iranian armed forces.’
US Secretary of State Marco Rubio warned Iran late Thursday not to respond to Israeli strikes by hitting American bases, saying Washington was not involved.
‘We are not involved in strikes against Iran and our top priority is protecting American forces in the region,’ Rubio said in a statement.
‘Let me be clear: Iran should not target US interests or personnel.’
A barrel of Brent jumped to $73.01 early Friday, from $69.66 at the time of the London equities close on Thursday. Gold rose to $3,418.42 an ounce from $3,388.71.
The yield on the 10-year US Treasury narrowed to 4.35% from 4.38%. The 30-year yield slimmed to 4.84% from 4.87%.
Sterling fell to $1.3563 from $1.3586, the euro declined to $1.1551 from $1.1575 and against the yen, the dollar bought JP¥143.71, unmoved from a day prior.
‘The Israeli strike on Iran’s nuclear facilities has sent oil prices spiking and has offered the oversold and undervalued dollar a catalyst for a rebound. The energy price shock is generally disliked by the euro and gives the Federal Reserve an argument to stay cautious. We see more short-term downside potential for EUR/USD,’ analysts at ING commented.
‘The week has been a rather negative one for the pound‘s domestic drivers. April GDP surprised yesterday with a 0.3% month-on-month contraction, and our economist notes how growth may well get worse later in the year. Adding to that, payrolls dropped significantly in May, and a relatively uneventful spending review event did very little to suggest the government can dodge tax rises at the autumn budget.’
ING analysts added: ‘Cable has potentially a wide room for downside correction given how expensive it looks relative to rate differentials. But we have seen how structurally bearish USD bets are preventing dollar gains from being sustainable. So we’d be more cautious on that side.’
Numbers on Thursday had showed the UK economy fell 0.3% in April from March. It had expanded 0.2% in March from February.
The reading for April fell short of expectations, as a smaller decline of 0.1% was expected, according to consensus cited by FXStreet.
In London, defence and oil majors led the way amid the geopolitical worries. Defence contractor BAE Systems added 2.9%, while BP rose 2.2% and Shell added 1.5%.
At the other end of the FTSE 100, travel stocks struggled. British Airways parent International Consolidated Airlines Group tumbled 4.3%, while budget carrier easyJet shed 3.9%.
Among FTSE 250s, exploration and production company Energean, which has assets in Israel, was down 7.2%.
Energean received an order from the Israeli Ministry of Energy & Infrastructure calling for the temporary suspension of production and activities of the Energean Power FPSO.
‘The safety of Energean’s staff is our top priority. All production activities have now been temporarily suspended and notices have been issued to Energean’s customers and other stakeholders. Energean maintains a close dialogue with the Ministry of Energy & Infrastructure and other relevant stakeholders to facilitate the safe resumption of production as soon as possible,’ the company said.
Elsewhere, Renold climbed 9.2%. It agreed to a £186.7 million takeover by MPE.
The Manchester, England-based supplier of industrial chains and related power-transmission products said the offer, which represents a 50% premium to Renold’s closing price on May 19, the day before the offer period began, has the backing of Renold’s board.
Adriatic Metals said it has accepted a $1.25 billion takeover offer from Dundee Precious Metals. The Toronto-listed gold mining company operates in Bulgaria, Serbia and Ecuador. It offered 93 pence in cash for each Adriatic share, plus 0.1590 of a new Dundee share.
The deal values all of Adriatic - the operator of the Rupice silver mine in Bosnia - at $1.25 billion.
Adriatic Metals shares rose 1.7%.
Still to come on Friday is a eurozone industrial production reading at 1000 BST.
In Tokyo, the Nikkei 225 ended 0.9% lower. In China, the Shanghai Composite lost 0.8%, while the Hang Seng Index in Hong Kong was 0.9% lower. In Sydney, the S&P/ASX 200 ended down 0.2%.
In New York on Thursday, the Dow Jones Industrial Average rose 0.2%, the S&P 500 added 0.4% and the Nasdaq Composite climbed 0.2%. But US equity futures were sharply lower, with the Dow down 1.3%, S&P 1.4% lower and the Nasdaq down 1.5%.
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