London midday: FTSE slumps as travel, bank stocks hit by Iran conflict

(Sharecast News) - London stocks were still firmly in the red by midday on Monday, with travel and banking names under the cosh following the US and Israel's strikes on Iran over the weekend, although losses were less pronounced than in other markets.

The FTSE 100 was down 1% at 10,806.09, while Brent crude was up 6.7% at $77.74 a barrel and gold futures on Comex were up 2.8% at $5,395.10 an ounce.

Despite the heavy losses, the top-flight index outperformed European peers thanks to strength in the energy and defence sectors. In Europe, indices were off their earlier lows but still faring worse than in the UK, with the benchmark Stoxx 600 index down 1.4%, Germany's Dax 1.9% lower and France's CAC 40 off 1.7%.

Kathleen Brooks, research director at XTB, said the FTSE 100 is expected to be an outperformer as the proliferation of defence names and oil majors help to prop up the index.

Indeed, in a research note out earlier, Citi upgraded its stance on UK equities to 'overweight' from 'underweight' as it considered the impact of the weekend's events. It pointed out that the UK market is tilted heavily towards commodities and defensive sectors along with a sizeable share of aerospace & defence, and thus serves as an effective "geopolitical hedge" within equity portfolios.

Susannah Streeter, chief investment strategist at Wealth Club, said: "Investors are scuttling towards safe havens, seeking shelter as conflict widens in the Middle East. As attacks on Iran continue, Tehran is targeting US allies across the Gulf region in retaliatory strikes, including an RAF station in Cyprus, while Israel is targeting Hezbollah bases in Lebanon. The escalation is sending a shiver through financial markets, intensified by a sharp rise in oil prices. Brent crude has surged at the fastest rate in four years, rising almost 10% to around $80 a barrel.

"Higher energy prices pile costs onto companies, and there appears to be no immediate escape valve for prices. Iran has already cut off the Strait of Hormuz to shipping companies, an essential passage for around one-fifth of the world's oil and gas. While some Iranian and Chinese ships are reportedly still passing through, attacks on British and US tankers are a stark warning of the danger of taking this route. The effective closure of the Strait constrains crucial supplies from the Gulf, which is why prices have risen so sharply."

With Middle East tensions front and centre, UK macro points came and went with little fuss.

A survey out earlier showed the manufacturing sector continued to rebound in February as export orders surged.

The S&P Global UK manufacturing purchasing managers' index was 51.7, below the flash estimate of 52.0 but little changed on January's 51.8. The PMI has been above 50.0 for four consecutive months. A reading above the neutral benchmark of 50.0 indicates growth, while one below it suggests contraction.

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.

Unsurprisingly, travel and banks took the biggest hit in equity markets.

Events organiser Informa was the worst performer on the FTSE 100, followed by BA and Iberia owner IAG, Barclays, Standard Chartered and InterContinental Hotels.

IHG was also in focus after the Competition and Markets Authority said it was among four hotel companies being investigated over suspected sharing of sensitive information.

Cruise operator Carnival, WH Smith, Wizz Air and SSP were also among the biggest fallers on the FTSE 250.

Susannah Streeter said: "Airline stocks have been sideswiped by the conflict, with the closure of airspace across large swathes of the Gulf causing significant disruption. Not only will the immediate chaos be costly, with so many stranded passengers and route closures, but the dent to confidence among the travelling public may also hit demand for holidays and business travel elsewhere.

"Financial stocks are also sharply 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."

Going the other way, defence firm BAE Systems shot higher, along with Babcock, Qinetiq and Chemring amid rising geopolitical tensions.

Citi pointed out in a research note that BAE Systems and Qinetiq are among the four European aerospace and defence firms with the biggest exposure to the US defence market, at around 44% of sales and 18%, respectively.

Oil giants BP and Shell gushed higher as oil prices surged, while precious metals miner Fresnillo shone as gold prices jumped.

In equity news, Bunzl's full-year revenue and operating profit met expectations, while Smith & Nephew posted a jump in annual revenues and profits as new products helped bolster demand.

Engineer Senior said it was on track to meet medium-term financial targets as it posted a rise in full-year profit and revenue, as the performance of its aerospace division improved.

Energean said the Israeli government had ordered it to suspend production at its floating gas production, storage and offloading facility near the country's coast in response to the war with Iran which began on Saturday.

Shares in Oxford Nanopore Technologies tumbled after the FTSE 250 firm lowered its medium-term guidance.

Market Movers

FTSE 100 (UKX) 10,806.09 -0.96%

FTSE 250 (MCX) 23,484.68 -1.15%

techMARK (TASX) 6,045.44 -0.07%

FTSE 100 - Risers

BAE Systems (BA.) 2,219.00p 5.02%

Shell (SHEL) 3,141.00p 2.51%

BP (BP.) 486.40p 2.04%

Bunzl (BNZL) 2,232.00p 1.82%

Airtel Africa (AAF) 354.20p 1.49%

Babcock International Group (BAB) 1,371.00p 1.48%

Fresnillo (FRES) 4,284.00p 0.99%

National Grid (NG.) 1,403.00p 0.86%

The Sage Group (SGE) 828.80p 0.83%

Admiral Group (ADM) 2,984.00p 0.67%

FTSE 100 - Fallers

Informa (INF) 784.60p -6.35%

International Consolidated Airlines Group SA (CDI) (IAG) 401.20p -5.22%

Barclays (BARC) 430.00p -5.10%

Croda International (CRDA) 2,935.00p -5.04%

Hikma Pharmaceuticals (HIK) 1,252.00p -4.72%

Standard Chartered (STAN) 1,747.00p -4.64%

InterContinental Hotels Group (IHG) 131.70p -4.29%

HSBC Holdings (HSBA) 1,335.40p -4.09%

Burberry Group (BRBY) 1,122.00p -3.61%

Smith & Nephew (SN.) 1,315.00p -3.61%

FTSE 250 - Risers

Ithaca Energy (ITH) 237.50p 7.32%

Jupiter Fund Management (JUP) 196.40p 4.36%

Avon Technologies (AVON) 1,918.00p 4.35%

Clarkson (CKN) 4,470.00p 4.34%

Harbour Energy (HBR) 263.80p 4.03%

Pan African Resources (PAF) 185.60p 3.68%

BlackRock World Mining Trust (BRWM) 1,066.00p 3.50%

QinetiQ Group (QQ.) 519.50p 2.87%

Shawbrook Group (SHAW) 404.50p 2.66%

Diversified Energy Company (DI) (DEC) 1,056.00p 2.13%

FTSE 250 - Fallers

Oxford Nanopore Technologies (ONT) 112.60p -14.80%

RHI Magnesita N.V. (DI) (RHIM) 2,930.00p -12.41%

PPHE Hotel Group Ltd (PPH) 1,760.00p -11.80%

Carnival (CCL) 2,177.00p -7.36%

WH Smith (SMWH) 640.50p -6.84%

Wizz Air Holdings (WIZZ) 1,146.00p -6.07%

IP Group (IPO) 53.70p -5.79%

SSP Group (SSPG) 194.60p -5.35%

Ocado Group (OCDO) 199.90p -4.88%

Hays (HAS) 38.70p -4.83%