(Sharecast News) - UK stocks pulled back sharply from record highs on Monday as risk appetite was hammered by the escalating conflict in the Middle East, as surging oil prices raised fears about inflationary pressures closer to home.
The FTSE 100, which settled at a new closing high of 10,910.55 on Friday after a 6.7% surge over the month of February, finished Monday's session down 1.2% at 10,780.11, with banks and travel stocks providing a big drag.
"It's been a tough day for global markets as investors try to price in the escalating conflict in the Middle East," said AJ Bell head of financial analysis Danni Hewson.
"Rachel Reeves no doubt had been hoping that tomorrow's Spring Statement would be a sedate affair with a whiff of positivity. The uncertainty generated by the conflict in the Middle East could knock the country's economic journey off course, and already expectation that the Bank of England will cut interest rates in March has been dialled back."
Oil prices hit levels not seen since last June after the US and Israel started a war with Iran on Saturday, assassinating the country's leader Ayatollah Ali Khomenei and several members of his administration, in an attack aimed at regime change in the Persian Gulf state.
The strikes across multiple provinces sparked a wild reaction from Iran, which fired missiles and drones across the region, hitting US bases in Kuwait and Bahrain, along with other strikes on Israel, Oman, Dubai and the British air force base on Cyprus.
Brent crude was up 6.3% at $77.46 a barrel on fears of oil supply disruption as Iran's Revolutionary Guard warned ships not to use the vital Strait of Hormuz - through which 20% of the world's oil is transported, along with other commodities.
Meanwhile, European natural gas futures rocketed 50% to a one-year high of 47/MWh as gas production was disrupted by the conflict.
In other news, the S&P Global UK manufacturing purchasing managers' index came in at 51.7, below the flash estimate of 52.0 but little changed on January's 51.8.
Elsewhere, the latest survey from Nationwide showed that house price growth held steady in February. House prices were up 0.3% on the month and 1% on the year, unchanged on January.
Data from the Bank of England showed mortgage approvals slid to a surprise two-year low in January.
Stocks react to Middle East developments
Travel-related stocks InterContinental Hotels and BA and Iberia owner IAG were under pressure, with surging oil prices set to increase costs for airlines, while thousands of flights across the Middle East were cancelled. In contrast, oil majors Shell and BP jumped.
On the upside, defence firms BAE Systems and Babcock shot higher amid rising geopolitical tensions. Citi pointed out in a research note that BAE Systems is among the four European aerospace and defence firms with the biggest exposure to the US defence market, at around 44%.
Banks Standard Chartered, Barclays and HSBC all slumped. Susannah Streeter, chief investment strategist at Wealth Club, said financial stocks were lower as "investors worry about the implications of prolonged fighting for economies, the potential drag on demand for borrowing, and the increased risk of loans turning bad".
Shares in Informa dropped on the back of the publishing and exhibition group's exposure to the Middle East region, with the Live Events arm accounting for around a quarter of company sales. However, analysts at Panmure Liberum, which rates Informa as a 'buy', said the immediate impact on the business "is likely to be limited" given Informa's schedule of events.
Market Movers
FTSE 100 (UKX) 10,780.11 -1.20%
FTSE 250 (MCX) 23,407.43 -1.47%
techMARK (TASX) 6,036.41 -0.22%
FTSE 100 - Risers
BAE Systems (BA.) 2,241.00p 6.11%
Airtel Africa (AAF) 360.20p 3.21%
Bunzl (BNZL) 2,246.00p 2.37%
The Sage Group (SGE) 840.00p 2.21%
BP (BP.) 487.85p 2.14%
Shell (SHEL) 3,132.00p 1.90%
Beazley (BEZ) 1,291.00p 1.89%
Babcock International Group (BAB) 1,375.00p 1.70%
Rolls-Royce Holdings (RR.) 1,354.00p 1.54%
National Grid (NG.) 1,400.00p 0.65%
FTSE 100 - Fallers
International Consolidated Airlines Group SA (CDI) (IAG) 400.50p -5.48%
Standard Chartered (STAN) 1,735.00p -5.29%
JD Sports Fashion (JD.) 77.88p -5.00%
Hikma Pharmaceuticals (HIK) 1,249.00p -4.95%
Burberry Group (BRBY) 1,108.50p -4.69%
HSBC Holdings (HSBA) 1,332.00p -4.42%
Informa (INF) 801.20p -4.41%
Smith & Nephew (SN.) 1,313.00p -4.27%
InterContinental Hotels Group (IHG) 131.80p -4.15%
Mondi (MNDI) 851.00p -4.08%
FTSE 250 - Risers
Harbour Energy (HBR) 271.60p 7.18%
Ithaca Energy (ITH) 234.00p 5.74%
Clarkson (CKN) 4,435.00p 4.11%
Shawbrook Group (SHAW) 410.00p 4.06%
Jupiter Fund Management (JUP) 194.40p 3.40%
Ceres Power Holdings (CWR) 310.20p 3.40%
Avon Technologies (AVON) 1,900.00p 3.37%
Foresight Environmental Infrastructure Limited (FGEN) 74.00p 2.78%
IG Group Holdings (IGG) 1,335.00p 2.61%
Pan African Resources (PAF) 183.40p 2.34%
FTSE 250 - Fallers
RHI Magnesita N.V. (DI) (RHIM) 2,825.00p -15.55%
Oxford Nanopore Technologies (ONT) 114.70p -13.82%
PPHE Hotel Group Ltd (PPH) 1,732.00p -13.40%
Carnival (CCL) 2,160.00p -8.09%
WH Smith (SMWH) 639.00p -7.93%
WPP (WPP) 254.00p -7.64%
IP Group (IPO) 52.80p -7.37%
SSP Group (SSPG) 191.20p -7.00%
Aston Martin Lagonda Global Holdings (AML) 43.38p -6.31%
THG (THG) 32.72p -6.25%
130.44 (1.20%)
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