The FTSE 100 closed down 177.56 points, 1.7%, at 10,195.37.
The FTSE 100 slumped on Friday as talks between the US and China failed to deliver hoped for progress on the Middle East, adding to jitters caused by domestic political uncertainty.
“There’s a downbeat feel around at the end of the week as big problems crowd in, without resolutions in sight,” said Susannah Streeter, chief investment strategist at Wealth Club. The FTSE 250 ended down 231.93 points, 1.0%, at 22,596.14, and the AIM All-Share fell 8.23 points, 1.0%, at 808.89. Investors were left disappointed as highly anticipated talks between US President Donald Trump and Chinese leader Xi Jinping failed to deliver major breakthroughs on the Middle East war or trade relations.
“With diplomatic efforts aimed at resolving the Middle East conflict in limbo, fresh uncertainty has flooded in,” she added. The White House said the leaders had “agreed that the Strait of Hormuz must remain open to support the free flow of energy”. But investors had hoped for more progress towards reopening the crucial strait, where oil tanker traffic has ground to a near standstill since the outbreak of the war, sending energy prices soaring.
Brent crude for July delivery was trading at 108.83 dollars a barrel on Friday, up compared with 104.92 dollars at the time of the equities close in London on Thursday. In New York, the Dow Jones Industrial Average was down 0.9%, the S&P 500 fell 1.0%, and the Nasdaq Composite was 1.2% lower.
In London, sentiment was further knocked by another wave of worry about political instability as Mayor of Greater Manchester Andy Burnham pledged to fight for a return to Westminster, where he is likely to launch a leadership challenge to Prime Minister Sir Keir Starmer.
“Burnham’s big hurdle of course is winning the by-election and so this leadership race looks set to be long and cumbersome. Another bout of political infighting, with yet another Prime Ministerial shuffle under way is hardly a good look for a country which needs to portray stability to attract investment,” said Ms Streeter. The double whammy of Middle East and Westminster uncertainty saw UK government borrowing costs soar and the pound sink.
ING said the biggest risk here is that investors begin to question the UK’s longer-term fiscal discipline.
“Gilt markets rely on foreign investors and any signs that fiscal dynamics risk turning unsustainable could quickly turn sentiment,” ING explained. “Until we get a better understanding around the fiscal path forward, political risk premium is likely to keep rising. A rise towards 5.30% is quite possible in the near term,” ING added. The pound fell against the dollar to 1.3319 dollars on Friday afternoon from 1.3480 dollars on Thursday.
Against the euro, sterling ebbed to 1.1462 euros from 1.1549 euros on Thursday. The euro traded lower against the greenback, at 1.1622 dollars on Friday, from 1.1677 dollars on Thursday. Against the yen, the dollar was trading at 158.68 yen, higher than 158.14 yen. The yield on the US 10-year Treasury widened to 4.58% on Friday from 4.46% on Thursday.
The yield on the US 30-year Treasury stretched to 5.12% from 5.01%. On a quiet day for company news, reports of possible bids drove price moves for Hiscox and Magnum Ice Cream. Bermuda-based insurance provider Hiscox topped the FTSE 100 leaderboard, up 12%, as Insurance Post reported Canada’s Intact Financial Corp was exploring a potential bid. Citing multiple sources, Insurance Post said Intact is exploring a potential bid for Hiscox as it tries to build out its commercial lines business.
Meanwhile, Magnum Ice Cream jumped 9.4% as Reuters named Blackstone and Clayton, Dubilier & Rice as among several private equity firms in the early stages of exploring bids for the owner of Cornetto and Ben & Jerry’s which was spun out of Unilever less than six months ago. But analysts at JPMorgan think a deal will not be straightforward and say tax considerations may limit the potential for a Magnum takeover in the near term.
In a research note, published after the Reuters report, JPM explained that since the separation of Magnum was a tax-free de-merger, the company has agreed to refrain from actions that could create a tax liability – including for two years being restricted from engaging in “certain acquisition, merger, liquidation, sale, and stock redemption transactions”. In addition, Magnum has agreed to indemnify Unilever for any taxes or losses if the de-merger fails to qualify as tax-free.
Among the blue chip losers, miners sank amid falling metals prices. Fresnillo fell 10%, Antofagasta dropped 11% and Anglo American fell 5.7%. Gold traded at 4,544.53 dollars an ounce on Friday, down from 4,688.75 dollars on Thursday. The price of silver was 8.5% lower from the day before and copper around 5.0% lower.
Political uncertainty and rising gilt yields weighed on utilities, with Severn Trent down 8.0%, SSE down 7.7% and United Utilities down 7.5%. The biggest risers on the FTSE 100 were Hiscox, up 202p at 1,841p, 3i Group, up 98p at 2,210p, JD Sports Fashion, up 1.76p at 72.02p, Relx, up 58p at 2,423p and BP, up 11.5p at 552.2p. The biggest fallers on the FTSE 100 were Airtel Africa, down 39.8p at 328.4p, Antofagasta, down 457p at 3,810p, Fresnillo, down 372p at 3,335p, Severn Trent, down 252p at 2,882p and National Grid, down 102.5p at 1,188p. Monday’s global economic calendar has China industrial production, retail sales and unemployment data before GDP data in Switzerland.
Monday’s local corporate calendar has full-year results from airline Ryanair and self-storage operator Big Yellow.
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