FTSE 100 held back by Shell and BP as pound hits three-year high
The FTSE 100 edged up and the pound hit a new high as investors flocked back to risk on Tuesday, but London’s blue-chip index’s rebound was held back by the falling price of oil.
The UK’s flagship index nudged up 0.3 per cent in early trading to around 8,7883.
But significant gains were held back by a slump from oil giants BP and Shell.
BP topped the fallers down over four per cent to near 369p while Shell was not far behind at three per cent.
The oil majors had benefitted from a surge in oil prices as Middle Eastern conflict escalated and analysts had praised the firm’s for “keeping the FTSE 100 in better shape than European peers”.
Shell is the second most valuable company on the blue-chip index, with a market cap around £158.5bn. BP ranks eight, with a market cap of nearly £62b. The firm’s larger weightings make share price movements instrumental in driving a greater impact on the FTSE 100’s performance.
As Israel confirmed its ceasefire with Iran early Tuesday morning, the price of Brent crude tumbled 5 per cent to below $68. This was on top of a seven per cent slump on Monday.
The price quickly spiked to around $69.67 a barrel after Israel claimed Iran had broken the ceasefire – but this still left Brent down 2.5 per cent for the day.
Kathleen Brooks, research director at XTB, said “a fragile ceasefire” was keeping the markets on edge.
“The rapid oil price decline earlier today was a sign that the market is taking this agreement as a done deal.
“Brent crude had rallied nearly 20 per cent in the past month as a war premium was attached to the price of oil, which is now being unwound. However, if there are more signs that the ceasefire is not holding, we could see the oil price resume its uptrend,” Brooks said.
Pound storms ahead as blue-chips rise
Still, the tentative ceasefire in the Middle East helped power the pound to a three-year high against the dollar.
Sterling extended its strong Monday run to near 1.3630 against the greenback as a potential ceasefire drove a global risk rally and investors deserted safe-haven’s such as the dollar.
The US Dollar Index (DXY), which tracks the dollar against a basket of major currencies, fell to near 98.13 on Tuesday, compared to a two-week high of 99.40 on Monday.
Major stocks on the FTSE 100 were also benefiting from the return to risk.
Airlines led the risers with low-cost airline easyjet up nearly seven per cent and British Airways owner IAG up over six per cent.
But many of their peers were still uneasy and continued to halt flights even after the ceasefire announcement. British Airways has suspended all flights to Doha til June 25, Reuters reported, and Wizz Air has cancelled flights to and from the United Arab Emirates until June 30.
Elsewhere, retailer JD and banking giant Barclays jumped over three per cent.