Stock prices in London made little headway at Monday’s market open, as the prospect of escalation in the Middle East prompted investors to be cautious.
The FTSE 100 index opened up 10.37 points, 0.1%, at 7,609.97. The FTSE 250 was up 21.62 points, 0.1%, at 17,475.84, and the AIM All-Share was up 1.30 points, 0.2%, at 690.97.
The Cboe UK 100 was up 0.1% at 759.91, the Cboe UK 250 was marginally lower at 15,158.12, and the Cboe Small Companies was down 0.1% at 12,799.04.
In European equities, the CAC 40 in Paris was marginally in the green, while the DAX 40 in Frankfurt edged into the red.
“With the number of moving parts on the increase, investors are tending to err on the side of caution. The possibility of escalating violence in the Middle East and the potential for the conflict to fan out to the wider region has seen a shift in favour of haven assets, with the US dollar, Treasury bonds and gold all spiking. At the same time the oil price has moved higher once more on potential supply disruptions,” said interactive investor’s Richard Hunter.
More than one million people have fled their homes in Gaza in scenes of chaos and despair as Israel bombarded the Hamas-ruled Gaza Strip and continued amassing troops Monday in preparation for a full-blown ground invasion.
US President Joe Biden said in an interview with the CBS news programme 60 Minutes that while invading and “taking out the extremists” was needed, any move to occupy the territory would be a “big mistake”. The US and Israel are discussing a Biden visit in the coming week.
Hamas backer Iran and Lebanon’s Hezbollah, which is also supported by Tehran, have warned that an invasion would be met with a response. “No one can guarantee the control of the situation and the non-expansion of the conflicts” if Israel sends its soldiers into Gaza, said Iran’s Foreign Minister Hossein Amir-Abdollahian.
Israel’s Defence Minister Yoav Gallant said his country had “no interest in a war in the north, we don’t want to escalate the situation”.
“If Hezbollah chooses the path of war, it will pay a very heavy price,” he said on Sunday. “But if it restrains itself, we’ll respect the situation and keep things the way they are”.
The Israeli army said Monday it was evacuating residents living along its northern frontier with Lebanon amid rising tensions.
“A potential implication of Iran in Gaza would bring a severe disruption to world’s oil supply in the medium run. Iran doesn’t want tensions to rise but they say that they can’t sit and watch if Israel enters Gaza. Here…technicals will have little say if fundamentals dictate a further rally,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Brent oil was trading at USD90.92 a barrel early Monday, rising further from USD89.59 late Friday. It crossed above USD91.00 in the early hours. The price is up sharply from USD86.62 a barrel early on Friday morning.
Shares in oil majors BP (LONDON: BP) and Shell were up 1.1% and 0.9% respectively, helping to keep the FTSE 100 in the green, given they are among the index’s largest constituents by market cap.
“Price swings in crude oil have important implications for the world economy: rising energy prices threaten to disrupt the central banks’ war against inflation, and weigh on an already-bad-looking global economy,” the Swissquote analyst continued.
According to CME’s FedWatch tool, the market is all but certain the Federal Reserve will hold rates at its meeting in 16 days’ time. However, the possibility of a 25 basis point hike at its December meeting has crept up to 33% from 24% a week ago.
Sterling was quoted at USD1.2169 early Monday, higher than USD1.2135 at the London equities close on Friday. The euro traded at USD1.0536, up from USD1.0498. Against the yen, the dollar was quoted at JPY149.68, edging up versus JPY149.66.
Gold was quoted at USD1,919.84 an ounce early Monday, lower than USD1,922.99 on Friday. However, it is up sharply in recent days, as investors flock to the safe haven asset.
In early UK news, house price growth was muted this month by October’s usually loftier standards, numbers from Rightmove showed, though the property portal noted some calm is returning to the mortgage market.
According to Rightmove, UK house prices rose 0.5% on-month in October, quickening slightly from September’s 0.4% rise. However, this month’s rise is markedly cooler than the 1.4% “historic norm” house price expansion usually delivered in October.
Shares in housebuilders Taylor Wimpey, and Barratt Developments rose 0.7% and 0.8% respectively.
Elsewhere in the FTSE 100, broker ratings were having some sway. Severn Trent rose 1.0%, as Jefferies raised the utility stock to ‘buy’ from ‘underperform’. Meanwhile, Ocado shed 3.8% as Barclays cut the stock to ‘underweight’ from ‘equal weight’.
In the FTSE 250, Hipgnosis Songs Fund sank 13%.
The music intellectual property rights investor withdrew a previously declared interim dividend, explaining that its independent portfolio valuer had “materially reduced” its expectations for retroactive royalty payments in the US.
On Monday, Hipgnosis said it now expects to receive “significantly lower retroactive payments” of songwriter royalties for 2018 to 2022. Due to the expected decision by the US Copyright Royalty Board for that period, Hipgnosis plans to reduce its retroactive accrual to USD9.9 million from the USD21.7 million it had accrued at the end of March.
To ensure compliance with a covenant of its revolving credit facility, Hipgnosis will withdraw the dividend payment. It also will discuss the royalties issue with its lenders.
“Subject to satisfactory conclusion to discussions with lenders, the board expects to declare and pay future dividends as targeted,” Hipgnosis said.
In Asia on Monday, the Nikkei 225 index in Tokyo closed down 2.0%. In China, the Shanghai Composite closed down 0.5%, while the Hang Seng index in Hong Kong was down 0.9% in late dealings. The S&P/ASX 200 in Sydney closed down 0.4%.
In the US on Friday, Wall Street ended mixed, with the Dow Jones Industrial Average up 0.1%, the S&P 500 down 0.5% and the Nasdaq Composite down 1.2%.
Earnings season in New York continues this week, with Bank of America, Goldman Sachs, Johnson & Johnson due to report on Tuesday, with Morgan Stanley, Netflix and Tesla to follow on Wednesday.
While JPMorgan, Citi and Wells Fargo reported strong quarterly profit growth on Friday, this was overshadowed somewhat by their sombre outlooks.
JPMorgan’s Chair & CEO Jamie Dimon commented: “This may be the most dangerous time the world has seen in decades,” as he cited the “far-reaching impacts on energy and food markets, global trade and geopolitical relationships” stemming from the conflict in Israel and Ukraine.
The economic calendar gets off to a quiet start this week. There is UK employment data on Tuesday, Chinese economic growth, retail sales and industrial production as well as EU inflation data on Wednesday, and the weekly US unemployment claims report on Thursday.
