LONDON MARKET CLOSE: US-Iran Tensions, Stronger Pound Hinder FTSE 100

(Alliance News) - The FTSE 100 struggled on Monday as risk-off trade dominated amid heightened tensions between the US and Iran, with London's blue-chip index further weighed down by an increase in sterling.

The FTSE 100 index closed down 47.06 points, or 0.6%, at 7,575.34. The FTSE 250 ended down 227.66 points, or 1.0%, at 21,760.53, and the AIM All-Share closed down 3.39 points, or 0.4%, at 960.68.

The Cboe UK 100 ended down 0.6% at 12,821.01, the Cboe UK 250 closed down 0.8% at 19,713.49, and the Cboe Small Companies ended up 0.1% at 12,311.75.

"The sell-off in Asia spilt over into the European session with bourses across Europe on the back foot on Monday. Investors are trading cautiously as they wait to see how tensions between Iran and US play out," said Fiona Cincotta at City Index.

Monday's risk-off mood was sparked by US President Donald Trump ordering a drone to fire a missile at Qasem Soleimani, one of the most influential people in Iran's government, when he was near the Iraqi capital's international airport on Friday, killing him.

Trump has since warned Iran against taking vengeance, repeating his insistence that US bombing targets could include Iran's cultural heritage sites. The situation in neighbouring Iraq, a US ally, has also deteriorated, with the future of some 5,200 American soldiers there in doubt.

Trump told reporters that a forced departure of US troops would prompt sanctions even worse than those already imposed, to devastating effect, on Iran's economy.

Save-haven asset gold rose amid Monday's cautious mood, quoted at USD1,562.34 an ounce at the London equities close Monday against USD1,549.40 at the close on Friday, trading around its best levels since April 2013.

"In light of the continued uncertainty in relation to the US-Iran situation, dealers are scrambling to snap up assets that are perceived to be lower risk, and hence why gold is in demand," explained David Madden at CMC Markets.

These tensions in the Middle East also caused the price of oil to rise on Monday, with Brent quoted at USD68.94 a barrel at the London equities close Monday from USD68.11 late Friday.

Brent had risen to over USD70 a barrel overnight, its best price since May 2019, though recent gains faded slightly as Monday's session progressed.

On the back of the heightened oil price, shares in energy major BP closed up 2.0%, placing the stock at the top of the FTSE 100. Royal Dutch Shell 'A' shares closed up 0.5% and 'B' shares up 0.6%.

Hurting from oil's rally were airlines, however, among the losers in Europe at the start of the week on worries over higher fuel prices.

In London, British Airways parent International Consolidated Airlines closed down 2.6%, easyJet down 2.0% and Ryanair down 1.8%.

In Germany, Deutsche Lufthansa ended 1.4% lower and Air France KLM finished down 0.8% in Paris.

In European equities on Monday, the CAC 40 in Paris ended down 0.5%, while the DAX 30 in Frankfurt ended down 0.7%.

Stocks in New York were mixed at the London equities close, with the Dow Jones down 0.2%, the S&P 500 index flat, and the Nasdaq Composite up 0.1%.

In data on Monday, US service sector activity accelerated to a five-month high in December.

The seasonally-adjusted US services business activity index registered 52.8 in December, up from 51.6 in November. Any reading above 50.0 indicates expansion in a sector.

A second consecutive increase in new business drove the expansion, with stronger client demand leading to the fastest rise in new orders for five months.

There was also positive news from the UK, where the service sector showed signs of stabilising.

The IHS Markit-Chartered Institute of Procurement & Supply services purchasing managers' index rose to 50.0 in December from 49.3 in November. This marked stabilisation in the sector, with the latest reading bang on the no-change mark of 50 and above the earlier flash estimate of 49.0.

The services sector was helped by a return to improving order books, with the sharpest rise in new work recorded since July.

"While today's PMI figure of 50 is far from impressive, this represents a much better-than-expected reading which crucially takes the sector out of contraction territory. December was a month that encompassed both the pre-election uncertainty, and post-election certainty. Thus, with the latter half of December dragging the sector out of contraction, we can now be confident that services will enjoy a recovery as we move into 2020," said Joshua Mahony, senior market analyst at IG.

The pound was quoted at USD1.3165 at the London equities close Monday, rising on the PMI release, up compared to USD1.3092 at the close on Friday.

Meanwhile, the euro stood at USD1.1187 at the European equities close Monday, against USD1.1177 at the same time on Friday. Against the yen, the dollar was trading at JPY108.37 compared to JPY107.93 late Friday.

Back in London, Hikma Pharmaceuticals ended down 3.9% after JPMorgan cut the stock to Underweight from Neutral.

BAE Systems closed up 1.3% as the defence firm gained on US-Iran tensions.

WM Morrison ended down 3.1% ahead of the release of the supermarket's third quarter results on Tuesday.

In the FTSE 250, Spirent Communications shed 6.7% after Investec reduced its recommendation to Sell from Hold. Also hurting from a ratings downgrade was PageGroup, slipping 4.0% after Jefferies cut the recruitment firm to Hold from Buy.

In the UK corporate calendar on Tuesday there are annual results from Safestore as well as C4X Discovery, and a trading statement from Carr's Group.

In Tuesday's economic calendar, there is a Japanese services PMI at 0030 GMT followed by eurozone retail sales and inflation at 1000 GMT. The US trade balance is at 1330 GMT with factory orders due at 1500 GMT.

At 0800 GMT, the latest UK grocery share figures from Kantar are out.

By Lucy Heming; lucyheming@alliancenews.com

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