LONDON MARKET MIDDAY: Oil, Gold Shine As US-Iran Tensions Rattle FTSE

(Alliance News) - Share price gains for London-listed oil majors were unable to lift the FTSE 100 at the start of the week as heightened tensions between the US and Iran sparked broad-based losses on Monday.

The FTSE 100 index was down 74.39 points, or 1.0%, at 7,548.01. The FTSE 250 was down 245.45 points, or 1.1%, at 21,742.74, and the AIM All-Share was down 0.6% at 958.29.

The Cboe UK 100 was down 0.8% at 12,790.16, the Cboe UK 250 was down 1.1% at 19,659.03, and the Cboe Small Companies down 0.1% at 12,289.25.

"As crude oil prices retest and push beyond the highs seen in the wake of the drone strike on Saudi Arabia last year, risk assets have started the week on the back foot with Asia markets starting the first full trading week of the year with sharp falls, as concerns increase about further escalations between the US and Iran," said Michael Hewson, chief market analyst at CMC Markets.

This slide in risk appetite was caused by US President Donald Trump ordering a US 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 neighboring 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.

Brent oil was quoted at USD69.60 a barrel midday Monday from USD68.11 late Friday, having risen above USD70 overnight.

Iraq is a member of OPEC, a group consisting of the world's major oil exporting nations, alongside Iran.

Another commodity gaining amid the shaky start to the week was gold, the safe haven asset quoted at USD1,577.07 an ounce against USD1,549.40 at the close on Friday, trading around its best levels since April 2013.

Gold miners benefited from this, with Fresnillo 2.1% higher and Hochschild Mining up 1.5% in London at midday.

On the back of the heightened oil price, shares in energy major BP were up 1.8%. Royal Dutch Shell 'A' shares were up 1.1% and 'B' shares up 1.0%.

Conversely, among the losers in Europe at the start of the week were airlines on worries over a higher fuel price and its knock-on effect on fuel costs.

In London, British Airways parent International Consolidated Airlines was down 3.6%, easyJet down 2.4% and Ryanair down 3.0%. In Germany, Deutsche Lufthansa was 2.7% lower and Air France KLM was down 2.6% in Paris.

In mainland Europe on Monday, the CAC 40 in Paris was down 1.2%, while the DAX 30 in Frankfurt was 1.7% lower.

Stocks in New York were called for a lower start on Monday with the Dow Jones and S&P 500 index both seen down 0.6%, and the Nasdaq Composite 0.7% lower.

To come on Monday is a US Markit services PMI at 1445 GMT.

Already released, the UK services sector performed better than first expected in November.

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.

There was also an improvement in the services sector over in the eurozone. The bloc's PMI improved to 52.8 in December, from 51.9 in November. The December score was revised upwards from the flash reading of 52.4.

Germany's services sector ended 2019 on a positive note. The services PMI came in at 52.9 points in December, improving from 51.7 in November. This is the best reading since August, though is below the 54.0 average for 2019.

The pound was quoted at USD1.3169 at midday Monday following the PMI data, compared to USD1.3092 at the close on Friday. The euro stood at USD1.1203 at midday Monday, against USD1.1177 late Friday.

Against the yen, the dollar was trading at JPY108.07, higher compared to JPY107.93 late Friday.

"The USDJPY could be hamstrung at 108 as the yen's risk-off tendencies give way to Japan's negative economic disposition to higher oil prices," commented Stephen Innes, chief Asia market strategist at AxiTrader.

Back on the London Stock Exchange, Hikma Pharmaceuticals was the worst performer in the FTSE 100 after JPMorgan cut the stock to Underweight from Neutral.

BAE Systems was up 1.3%, the defence firm gaining on tensions in the Middle East. In the US, defence peer Lockheed Martin was up 3.2% pre-market, having gained 3.6% on Friday.

Plus500 was down 5.6% after the contracts-for-difference provider said it expects to report a substantial drop in earnings and revenue for 2019 following a "period of change within the industry".

The FTSE 250 constituent said earnings before interest, taxes, depreciation and amortisation is expected to be USD190 million, on revenue of USD354 million. This would reflect a 62% drop from USD506.0 million in Ebitda reported for 2018, and a 50% decline from USD720.4 million in revenue.

By Lucy Heming; lucyheming@alliancenews.com

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