Stocks were in the red in London, Paris and Frankfurt on Tuesday morning, as investors await economic sentiment survey data from the eurozone and Germany.
US President Donald Trump has warned ‘everyone should evacuate Tehran’ as it was announced he would be departing the G7 leaders’ summit early due to the situation in the Middle East.
In a statement agreed at the summit, G7 leaders described Iran as ‘the principal source of regional instability and terror’ as conflict rages in the Middle East.
The back-and-forth of airstrikes between Israel and Iran has raised concerns about all-out war between the rival nations.
The FTSE 100 index opened down 49.71 points, 0.6%, at 8,825.51. The FTSE 250 was down 35.26 points, 0.2%, at 21,248.76, and the AIM All-Share was down 1.90 points, 0.3%, at 762.24.
The Cboe UK 100 was down 0.6% at 879.66, the Cboe UK 250 was down 0.1% at 18,763.46, and the Cboe Small Companies was down 0.3% at 17,063.27.
Oil majors led the FTSE 100, with BP up 1.9% and Shell up 0.9%. International Consolidated Airlines led the laggers, down 2.2%. Others in the red included miners Fresnillo, down 1.5%, and Glencore, down 1.5%.
Brent oil was quoted higher at $74.14 a barrel early in London on Tuesday from $72.79 late Monday. Gold was quoted lower at $3,384.91 an ounce against $3,403.81.
Among small caps in London, RC Fornax plummeted 51%.
The defence sector-focused engineering consultancy, which previously expected its customer base to ‘be resilient’, said that ‘it is now clear that a number of existing and prospective customers have delayed or reduced their short-term spending and development activity which has negatively impacted demand’, a situation it now expects ‘will not unwind immediately’.
As a result of this and other setbacks, RC Fornax now expects its full-year performance to ‘be significantly below market expectations, with FY25 revenue expected to be not less than £4.0 million’.
In UK news, a trade deal with the US has been signed and is ‘done’, Trump said as he met with UK Prime Minister Keir Starmer at the G7 summit.
The deal will grant British carmakers a reprieve by the end of June as levies drop from 25% to 10%, while the aerospace sector will face no import taxes.
But tariffs for the steel industry, which is of key economic importance to the UK, will stand at 25% for now rather than falling to zero as originally agreed.
Also, a third of UK business owners plan to cut more jobs over higher national insurance contributions, according to new research. Many companies have also suggested they will cut back hours, freeze pay and hike prices in order to help cover increased tax payments.
S&W’s business owners sentiment survey revealed that around 20% of those quizzed said they have already reduced their staff numbers as a ‘direct result’ of the NIC changes which came into effect in April.
The survey of 500 UK business owners with turnovers of £5 million upwards also showed 46% of those surveyed said they were planning further price increases.
In European equities on Tuesday, the CAC 40 in Paris was down 1.2%, while the DAX 40 in Frankfurt was down 1.5%.
The pound was quoted at $1.3557 early on Tuesday in London, down compared to $1.3594 at the equities close on Monday. The euro stood at $1.1550, lower against $1.1591. Against the yen, the dollar was trading higher at JP¥144.73 compared to JP¥144.09.
‘In FX markets, the US dollar remains under pressure, suggesting that investors are still not fully pricing in Middle East risk,’ Ozkardeskaya commented. ‘But this sense of calm may be misplaced. Markets seem far too relaxed in the face of serious geopolitical risks.
‘Any escalation could trigger renewed appetite for the dollar, gold, and oil. Despite recent weakness driven by global trade tensions, the dollar tends to hold up well when geopolitical uncertainty rises.’
In Asia on Tuesday, the Nikkei 225 index in Tokyo was up 0.6%. In China, the Shanghai Composite was down 1.00 point, while the Hang Seng index in Hong Kong was down 0.7%. The S&P/ASX 200 in Sydney closed down 0.1%.
The Bank of Japan kept interest rates unchanged Tuesday and said it would slow its tapering of government bond purchases, as expected by analysts.
The central bank, which began lifting borrowing costs last year as it moves away from an ultra-loose monetary policy, said its main interest rate would remain at around 0.5%.
In the US on Monday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.8%, the S&P 500 up 0.9% and the Nasdaq Composite up 1.5%.
The yield on the US 10-year Treasury was quoted unchanged at 4.43%. The yield on the US 30-year Treasury was quoted at 4.95%, widening from 4.92%.
‘Looking ahead, the Federal Reserve (Fed) kicks off its two-day policy meeting today,’ said Ozkardeskaya. ‘While no change in rates is expected [on Wednesday], geopolitical uncertainty and trade tensions make the outlook more complex.
‘Recent inflation data has been reassuring suggesting price pressures are not accelerating but tariffs and the risk of an oil price spike due to Middle East tensions will likely keep the Fed in a cautious stance. That said, markets could still react strongly to even a hint of dovishness from the Fed this week.’
Still to come on Tuesday’s economic calendar, the morning schedule has the ZEW economic sentiment surveys from the eurozone and Germany.
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