Oil Retreat Boosts FTSE Outlook as Dollar Holds Firm

Summary

Oil prices eased from a one-month high as renewed ceasefire hopes in the Middle East improved market sentiment, while the US dollar remained supported by elevated bond yields and inflation concerns. The FTSE 100 is set for a cautious open after Wall Street finished lower and European futures weakened. Asian chip stocks rebounded after recent heavy losses, while sterling fell after UK Prime Minister Andy Burnham reaffirmed the government's commitment to existing fiscal rules.

Equities

The FTSE 100 closed 0.7% lower on Monday, marking its largest one-day fall in around two weeks as investors weighed continuing tensions in the Middle East alongside political developments in the UK. The FTSE 250 fell 0.3%, while the FTSE SmallCap index slipped 0.2%. Attention also turned to the new government after Andy Burnham became Prime Minister, with markets awaiting the appointment of a Chancellor and further measures aimed at easing pressure on households.

AstraZeneca closed 1.7% lower on Monday, contributing to weakness across the healthcare sector, which fell 1.6%. Homebuilders led declines, dropping 3.5% as long-dated UK government bond yields moved higher, while utilities lost 1.4% and banks finished 0.7% lower. Industrial metal miners also weakened, ending the session down 1.1%.

Ryanair's quarterly profit fell by a third because of higher fuel costs and lower fares, putting pressure on airline shares across London. Wizz Air closed 2.9% lower, while British Airways owner IAG and easyJet each fell 1.4%. In contrast, Computacenter climbed 5.6% after Berenberg upgraded the technology services company to a "buy" rating from "hold".

In the US, Wall Street also ended Monday lower, although losses were relatively modest ahead of a busy week of corporate earnings. The Dow Jones Industrial Average closed 0.59% lower, the S&P 500 fell 0.19% and the Nasdaq Composite edged down just 0.05% as investors awaited results from Alphabet, Tesla and Intel.

Apple fell 2% by the closing bell on Monday and was the largest drag on the S&P 500. Microsoft provided the strongest positive contribution to the index, while Alphabet gained 1.5% after reports that Google is developing a new Gemini-integrated AI server chip designed to improve computing efficiency and expand AI capacity ahead of its earnings release.

Domino's Pizza closed 2.1% higher after quarterly revenue narrowly exceeded market expectations. Global Payments rose 5.8% after Morgan Stanley upgraded the shares to "overweight" and increased its price target, while Carvana fell 4.8%. The Philadelphia Semiconductor Index recovered from earlier gains to finish 0.6% higher as investors continued to assess the outlook for the chip sector before earnings from Intel and Texas Instruments later this week.

Forex & Commodities

Early this morning, the US dollar remained close to a one-week high as markets weighed ongoing tensions in the Middle East alongside reports that diplomatic efforts to secure a temporary ceasefire were continuing. The US Dollar Index held around 100.9 after reaching its highest level since 15 July during Monday's session. The euro was little changed at 1.142 against the US dollar, while sterling strengthened to 1.344 after new UK Prime Minister Andy Burnham reaffirmed his commitment to fiscal discipline before announcing plans to reduce taxes on household electricity bills.

Elsewhere, the New Zealand dollar climbed to 0.5864 after stronger-than-expected inflation data increased expectations of further interest rate rises, while the Australian dollar edged higher to 0.7001. The Canadian dollar steadied after recent weakness following the announcement of new US tariffs on a range of Canadian products.

Spot gold rose to $4,054 per ounce early this morning, extending gains after finding support around the $4,000 level in recent sessions. The precious metal benefited from renewed demand as investors balanced reports of a proposed 10-day ceasefire between the US and Iran against continued military action and uncertainty across the region. Silver advanced to $57.99 per ounce, while platinum traded at $1,610 per ounce and palladium reached $1,268 per ounce as precious metals broadly moved higher.

Oil prices eased this morning after climbing to their highest levels in around six weeks on Monday. Brent crude traded at $88.44 per barrel, while US West Texas Intermediate stood at $82.50 per barrel as reports of mediation between the US and Iran offset concerns over continued military strikes, a Houthi threat to impose a naval blockade on Saudi Arabia and reduced shipping through the Strait of Hormuz after another vessel was struck. Markets also continued to monitor expectations that US crude inventories declined last week ahead of the latest official data.