Oil surges as S&P 500 retreats on renewed Iran escalation

Summary

Oil prices surged after the US launched fresh strikes on Iran, prompting the S&P 500 to close lower as investors priced in higher inflation and renewed geopolitical risk. The US dollar remained firm against major currencies, while the yen stayed near a 40-year low as markets increased expectations for further Federal Reserve tightening. The FTSE 100 was supported by energy stocks, while Asian chip shares initially rallied before losing momentum as rising bond yields and higher oil prices weighed on sentiment. Shipping through the Strait of Hormuz continued at reduced volumes despite escalating tensions.

Equities

The FTSE 100 closed 1.7% lower on Wednesday at 10,489.04, marking its sharpest one-day fall since mid-May as renewed tensions in the Middle East unsettled investors. The FTSE 250 also fell 1.5%, its weakest session since March, with more than 80% of FTSE 100 constituents ending the day lower. Energy stocks were one of the few bright spots as oil prices climbed sharply following comments from US President Donald Trump that an interim agreement to end the conflict with Iran was "over".

BP closed 3.5% higher on Wednesday after the rise in crude oil prices improved the outlook for energy producers. Shell also advanced 2.3%, making both companies among the strongest performers on the FTSE 100 as Brent crude surged on fears of renewed supply disruption in the Middle East.

Jet2 jumped 8.2% after the travel company said customers were showing greater confidence in booking summer holidays following an earlier easing in regional tensions. The upbeat trading update strengthened expectations for the peak travel season despite higher fuel prices later in the day.

Vistry fell 7.1% after Britain's largest affordable housing builder warned it expects to report a first-half pre-tax loss of around £30 million. The update weighed on housebuilding shares as investors assessed the weaker earnings outlook.

IG Group slipped 2.2% after the online trading platform announced plans to establish a new Jersey-based holding company as part of a strategic restructuring intended to unlock shareholder value.

US markets closed mixed on Wednesday as stronger semiconductor shares offset broader weakness linked to renewed geopolitical concerns. The S&P 500 fell 0.28% to 7,482.71 and the Dow Jones Industrial Average dropped 1.09% to 52,348.39, while the Nasdaq rose 0.20% to finish at 25,870.65.

Broadcom climbed 4.8% after Apple announced plans to spend more than $30 billion under a recently agreed chip supply agreement with the company. The announcement reinforced confidence in Broadcom's long-term semiconductor business and helped lift the wider chip sector.

Nvidia gained 3.7% after reports that China could allow its leading artificial intelligence companies to purchase limited quantities of the company's H200 chips. The Philadelphia Semiconductor Index rose 2.2% as investors welcomed signs of improving demand.

Apple also finished higher following news of its expanded semiconductor investment. SpaceX fell 0.8% to its lowest closing price since its June stock market debut, while Microsoft and Alphabet each declined more than 1% and Meta Platforms lost 2%.

Higher oil prices weighed on travel-related shares. United Airlines and Delta Air Lines both closed more than 1% lower, while Carnival fell 3.9% and Norwegian Cruise Line lost 1.9% as investors considered the potential impact of rising fuel costs.

Forex & Commodities

The US dollar remained firm early on Thursday as renewed military action between the US and Iran increased demand for safe-haven assets and reinforced expectations that US interest rates could stay higher for longer. The dollar index held around 100.96, while the Japanese yen weakened back towards its recent 40-year low, with the US dollar trading near ¥162.4. Sterling was little changed against the US currency at around $1.339, while the euro also remained broadly steady near $1.143. The New Zealand dollar continued to strengthen after the country's central bank delivered a further interest rate increase and maintained a hawkish policy outlook, while the Australian dollar edged slightly higher.

Gold prices moved lower as higher oil prices strengthened expectations that inflation could remain elevated and prompt further interest rate increases. Spot gold traded around $4,060 per ounce after falling to its lowest level since 1 July during Wednesday's session. Bank of America also revised its 2026 average gold price forecast lower to $4,360 per ounce, citing a more hawkish outlook for US monetary policy.

Oil prices extended their gains early on Thursday after fresh US strikes on Iranian military targets reduced hopes of a lasting ceasefire and raised concerns about shipping through the Strait of Hormuz. Brent crude traded around $78.88 per barrel, while US West Texas Intermediate crude reached approximately $74.37. Although the waterway remains open, analysts expect shipowners to remain cautious, with geopolitical risks likely to keep a war-risk premium in oil prices over the coming months despite expectations for lower prices over the medium term.