Oil Rises as US-Iran Tensions Lift Market Nerves

Oil rose after fresh US strikes on Iran, with Brent moving higher while staying below $100 a barrel. The S&P 500 and Nasdaq fell as technology selling resumed, while the Dow edged higher. The FTSE 100 closed sharply lower, weighed down by BP, HSBC and Standard Chartered. The dollar held steady, sterling edged up, and gold fell to an 11-week low.

Equities

The FTSE 100 closed 1.4% lower on Tuesday at 10,227.33, its weakest finish since mid-May, while the FTSE 250 fell 0.8%. Banking and energy shares weighed heavily on the London market as investors assessed developments in the Middle East and their implications for inflation and interest rates.

BP closed 3.0% lower on Tuesday after announcing management changes within its business. The energy group appointed company veteran Gordon Birrell to lead its upstream division, while Richard Harding was named interim head of downstream operations. The decline came alongside a sharp fall in crude oil prices, which dropped more than 3% during the session and pressured energy stocks across the market.

HSBC fell 4.4% and Standard Chartered dropped 6.3% by the close on Tuesday, making both lenders significant drags on the FTSE 100. JPMorgan analysts warned that China’s new outbound direct investment regulations could have a more negative impact on UK, Asian and Swiss banks than previously anticipated.

GSK closed 0.5% lower after agreeing to acquire US cancer drug developer Nuvalent for $10.6 billion. In contrast, Molten Ventures surged 16.1% after releasing annual results, while Fever-Tree gained 5.1% after expressing confidence in meeting full-year revenue and profit expectations and announcing an increase in its share buyback programme.

In the United States, the Dow Jones Industrial Average rose 0.2% on Tuesday to 50,872.11. The S&P 500 fell 0.3% to 7,386.65 and the Nasdaq Composite lost 1.0% to 25,678.82 as weakness in technology shares returned after Monday’s rebound.

Technology and semiconductor stocks remained under pressure following concerns about valuations in the sector. The Philadelphia Semiconductor Index finished 1.9% lower, while the S&P 500 technology sector closed down 1.8%.

Broadcom shares fell 1.1% on Tuesday after last week’s disappointing forecast raised questions about growth expectations across the semiconductor industry. Nvidia slipped 0.2%, giving back a small portion of its recent gains.

Attention is also turning to SpaceX ahead of its planned market debut on Friday. The company is seeking to raise $75 billion at a valuation of $1.75 trillion, a flotation that is expected to be one of the largest and most closely watched stock market listings on record.

Forex & Commodities

The US dollar held broadly steady early on Wednesday as investors watched renewed US-Iran tensions and waited for May inflation figures from the United States. The dollar index edged down to 99.95, while sterling rose slightly to $1.338 and the euro was almost unchanged at $1.154.

The yen edged up to 160.3 per dollar, but remained close to the 160 level that traders widely associate with possible Japanese intervention. A Bank of Japan rate rise at its June 16 meeting is now almost fully priced in, while a Reuters poll showed economists expect another increase in the fourth quarter, taking borrowing costs to 1.25% by the end of the year.

Japan’s wholesale inflation rose to a three-year high of 6.3% in May, adding pressure on policymakers as energy-related costs broadened. Investors are also watching Thursday’s European Central Bank meeting, where a 25-basis-point rate rise is widely expected.

US consumer price inflation data for May is due later on Wednesday, with producer price figures due on Thursday. A stronger-than-expected US jobs report last week has already increased expectations that the Federal Reserve could raise interest rates again this year.

Spot gold fell 1.3% early on Wednesday to $4,206 an ounce, after touching its lowest level since March 23. Silver dropped 1.2% to $64.59 an ounce, platinum fell 3.0% to $1,676, and palladium declined 1.0% to $1,209.

Oil prices rose early on Wednesday after the US launched fresh strikes against Iran and industry data showed another large fall in American crude inventories. Brent crude climbed 0.7% to $92.11 a barrel, while US West Texas Intermediate rose 0.7% to $88.80.