(Alliance News) - Stock prices in London were firmly down at midday on Friday, as rising tensions between Israel and Iran alongside doubts around the timing of US interest rate cuts hurt investor sentiment.
Markets also responded to construction purchasing managers' index reads for the UK and eurozone, alongside Halifax's latest UK house prices data.
The FTSE 100 index was down 77.03 points, 1.0%, at 7,898.86. The FTSE 250 was down 202.97 points, 1.0%, at 19,670.22, and the AIM All-Share was down 3.61 points, 0.5%, at 738.97.
The Cboe UK 100 was down 0.9% at 789.74, the Cboe UK 250 was down 1.0% at 17,122.55, and the Cboe Small Companies was down 0.2% at 14,717.86.
The UK construction sector returned to growth in March, ending a six-month period of decline, figures showed.
The S&P Global UK construction PMI rose to 50.2 in March from 49.7 in February, above the FXStreet market consensus of 50.0 points.
Any reading above 50.0 indicates an overall expansion of construction output.
Although signalling only a fractional rise in business activity, the index was at its highest level since August 2023.
Annual growth in UK house prices slowed last month, and they went back into decline on a monthly basis, numbers from mortgage lender Halifax showed.
UK house price growth ebbed to 0.3% year-on-year in March, Halifax said, from a 1.6% hike in February.
Prices fell 1.0% in March from February, having risen 0.3% in February from January.
It was the first monthly fall since September, while the annual reading was the tamest since November.
In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt were both down 1.5%.
The eurozone construction sector remained firmly in contraction territory in March as activity fell sharply again according to latest figures from S&P Global.
The Hamburg Commercial Bank eurozone construction PMI total activity index eased to 42.4 points in March, down from 42.9 points in February and still below the 50.0 no-change mark separating growth from contraction.
S&P Global said the decrease in output continued to be driven by substantial contractions in housing activity, which was once again the worst-performing of the three monitored segments.
A barrel of Brent oil fetched USD90.96 at midday on Friday, up from USD89.13 at the London equities close on Thursday. It had topped USD91 a barrel earlier Friday, however.
Israeli Prime Minister Benjamin Netanyahu has threatened consequences in the event of an Iranian attack on his country.
"Iran has been acting against us for years, both directly and through its proxies; that is why Israel is taking action against Iran and its proxies, defensively and offensively," Netanyahu said at the start of a meeting of the Israeli security cabinet on Thursday evening, his office announced.
"We will know how to defend ourselves and we will act according to the simple principle: Whoever harms us or plans to harm us, we will harm them," Netanyahu said.
The Israeli government and its ally the US are concerned that Iran is preparing for an imminent attack, the news portal Axios quoted US and Israeli officials as saying.
Swissquote Bank analyst Ipek Ozkardeskaya commented: "So far, tensions in the Middle East didn't impact oil supply significantly. As a result, we saw a sustainable rise in oil prices – not a spike.
"But Iran's direct involvement could mark a new milestone in the Middle East conflict and could back a rapid rise in oil prices in the near term."
In the FTSE 100, oil majors were the top performers, with Shell the only stock to inch into the green up 0.1%, while BP was the second-best performing stock despite being marginally down.
Shell cautioned results from its Integrated Gas division in the first-quarter are expected to be "significantly lower" than in the fourth, and said it expects write-offs worth USD600 million in its Upstream arm.
The London-based firm expects Integrated Gas adjusted earnings before tax and depreciation between USD1.2 billion and USD1.6 billion.
"Trading & optimisation results are expected to be strong, but significantly lower than an exceptional Q4," it commented.
In Upstream, Shell warned of USD600 million in exploration well write-offs, largely in Albania. It expects adjusted earnings before tax and depreciation between USD2.7 billion and USD3.1 billion.
Elsewhere, in Chemicals & Products, "trading & optimisation is expected to be significantly higher" than a quarter earlier. For this division, Shell predicts adjusted earnings before tax and depreciation between USD0.8 billion and USD1.0 billion.
Stocks in New York were called higher. The Dow Jones Industrial Average was called up 0.1%, while the S&P 500 index and the Nasdaq Composite were both called up 0.3%.
Confidence in three rate cuts from the Federal Reserve this year, beginning in June, is being tested by a string of recent data indicating the US economy remains in rude health, while bank officials have done little to soothe concerns.
Minneapolis Fed chief Neel Kashkari said Thursday that there was a chance of no reductions this year, calling inflation figures in January and February "a little bit concerning" and adding that he wanted to see more positive data.
His Philadelphia counterpart Patrick Harker warned prices were still rising too sharply and that "we're not where we need to be", while Richmond boss Thomas Barkin called it "smart" to take time to get a clearer idea about the path for inflation.
Eyes now turn to Friday's nonfarm payrolls reading, at 1330 BST, which is expected to show the pace of jobs growth eased to 200,000 in March, from 275,000 in February, according to FXStreet.
AJ Bell analyst Russ Mould summarised: "Storm clouds circled equity markets as investors started to fret about when interest rates would be cut given heightened inflationary pressures from oil hitting USD90 a barrel and negative comments from a key figure. Minneapolis Federal Reserve Bank president Neel Kashkari questioned if the US central bank needed to cut rates at all this year if we continued to see sticky inflation.
"Investors don't want to hear such comments but they aren't blind to what's going on. The economy is proving to be resilient; the jobs market has pockets of weakness but it's not gone into freefall; and oil prices are going up which pushes up the costs of goods and services. On paper, the argument in favour of holding rates is growing by the day even though investors would dearly love to see cut after cut to relieve the financial pressures on consumers and businesses."
The pound was quoted at USD1.2634 on Friday at midday in London, down from USD1.2667 late Thursday. The euro fell to USD1.0834 from USD1.0865. Against the yen, the dollar fell to JPY151.35 from JPY151.67.
In London's FTSE 250, Wincanton was one of around a dozen stocks in the green, rising 0.1%.
The supply chain logistics specialist said that the period for an increased takeover offer from Ceva Logistics UK Rose had passed, leaving the company open for an acquisition by GXO Logistics in a GBP750 million deal.
Among London's small-caps, Topps Tiles fell a further 2.2%, as Wednesday's trading update still weighed on the stock.
The tile retailer said the weaker market, higher pay and seasonally higher energy usage would weigh on first half profit. Annual profit is expected to be weighted towards the second half.
The company said subdued demand in the domestic repair, maintenance and improvement sector, especially for bigger ticket projects, has persisted into 2024, resulting in lower footfall into stores.
On AIM, Gelion built further on its 70% jump on Thursday, rising a further 15%.
On Thursday, the battery technology company said it achieved a milestone with its lithium-sulphur battery development, increasing its energy density by around 60%.
This was by fabricating a 395 watt-hour per kilogram lithium-sulphur 9.5 ampere-hour pouch cell in a commercial cell format. Gelion said the energy density increase is compared with current lithium-ion batteries, which provide around 250 watt-hours per kilogramme.
"Achievement of this milestone represents a key technology proof point for Gelion," it said.
Gold was quoted at USD2,293.25 an ounce on Friday at midday, up from USD2,292.67 late Thursday.
By Greg Rosenvinge, Alliance News senior reporter
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