FTSE 100 stocks fell steeply on the opening of London’s market today as tensions between the US and Iran escalated further following the killing of a top Iranian general.
London’s blue-chip index sank one per cent to 7,545.4 points in early trading after the US-sanctioned assassination of Iranian general Qasem Soleimani drove markets lower and oil higher.
While BP gained almost two per cent from oil’s rising price, that could not prevent the FTSE 100 from stagnating again after a drop last Friday.
Airline stocks suffered from the sharper oil prices to offset energy firms’ gains. Easyjet sank three per cent and British Airways owner IAG dropped 3.3 per cent.
By the early afternoon the FTSE had trimmed losses to stand at 7,559.6 points.
Germany’s Dax performed even worse than the FTSE 100, however, suffering as much as a 1.7 per cent drop to 12,990 while France’s Cac sank as much as 1.25 per cent to 5,967 points.
That followed an overnight plunge in Asian stocks, which baulked at the international incident. The Nikkei dropped 1.9 per cent while Hong Kong’s Hang Seng index sank 0.8 per cent.
US President Donald Trump threatened Iraq with sanctions overnight after Iraqi MPs voted on a resolution calling for US troops to leave their stations in the country, bringing joint operations against so-called Islamic State to a halt.
Meanwhile European powers have urged all sides to show restraint. The UK, France and Germany said the violence “must be stopped” and said there was an “urgent need for de-escalation” in the Middle East.
“Since Soleimani’s death via US-ordered drone strike, things have continued to escalate,” Spreadex financial analyst Connor Campbell said.
“Investors are now faced with the prospect of weighing up whether this down move has further to go, or is just another opportunity to buy the dip,” CMC Markets chief analyst, Michael Hewson, added.
Prime Minister Boris Johnson spoke with Trump yesterday about the crisis in a call in which the White House said the leaders “reaffirmed the close alliance” between the US and the UK.
“The prospect of Iran avenging the killing of Soleimani and then a retaliation from the US is keeping de-escalation hopes at bay,” London Capital Group’s head of research, Jasper Lawler, said.
“Defensive industries like utilities are outperforming amid the downturn. We would expect the impact of these Middle Eastern tensions to be more durable in commodities markets than in equities. Geopolitics is providing the excuse for stocks indices to pullback from the overbought levels that existed into the end of 2019.”
Gold hit a seven-year high as a result of the US-Iran tensions as traders sought safe havens as global stocks like the FTSE 100 sank.
“It was a clear example of traders pushing for an asset that is deemed to be lower risk,” pointed out CMC Markets’ analyst, David Madden.
“Gold isn’t too far from the September highs, and should that metric be cleared it should pave the way for further gains.”
But Lawler warned traders seeking refuge from the FTSE 100 in precious metals could regret the move if US unemployment figures push the dollar up.
“We remain bullish on gold but would suggest caution ahead of US unemployment figures this week where strong jobs growth might see the dollar rebound,” he said.
Foreign secretary Dominic Raab has told Brits to avoid travelling to Iran or Iraq as the fallout from Soleimani’s death continues.
The late general’s daughter, Zeinab Soleimani, warned the US and Israel, the superpower’s ally in the region, that they would face retaliation.
Speaking at her father’s funeral today in comments broadcast live on state television, she said: “Crazy Trump, don’t think that everything is over with my father’s martyrdom.”
The general’s replacement, Esmail Ghaani, will now lead the Quds unit of Iran’s revolutionary guard. He said today “actions would be taken” in revenge for the US assassination.
Main image credit: Getty