The has not escaped the tumult with some bruising sessions over recent days, despite its high exposure to oil, defence and resource stocks as well as the strength of the dollar which is a tailwind for many of its constituents given a high level of overseas earnings, especially the US. Nonetheless, those factors have mitigated the declines and leaves the premier index almost 500 points lower than its recent high, but still 5% higher in the year to date.
Inflationary concerns are a particular drag for the same reasons as elsewhere, not least of which the lessening likelihood of a more immediate rate cut from the Bank of England to stimulate a largely ailing domestic economy.
Even so, there was some respite from the pressure of recent days as the FTSE 100 opened higher, with selected cyclical, risk-on stocks leading the way. Sentiment nonetheless remains on a knife-edge and any further deterioration in the Middle East would lead to more investment tension.
In the US, brittle sentiment snapped once more as increasingly aggressive rhetoric and actions in the Middle Eastern weighed heavily on growth prospects.
Escalation and duration of the conflict remain the key words, and at present there is little sign of either reducing. Strikes appear to be increasing rapidly and both sides involved in the conflict are ramping up the war of words as well as military activity. The has resumed its status as a source of haven capital, but the oil price is at the eye of the storm and causing most of the investment concerns.
Of course, oil’s uses are many and varied, from manufacturing, agriculture and construction to the more obvious fuel for airlines and petrol at the pumps. The price has risen by 40% since the beginning of the year and such an inflationary effect could severely temper business investment and hiring, as well as the propensity of the consumer to spend given higher prices.
Indeed, even the oil majors, whose share prices have unsurprisingly seen the benefit of the spike, will be closely watching for any further surges, since at a certain point it will become uneconomical to drill for new sources, which would be an additional supply constraint.
In the meantime, stocks in the US remained under pressure with the airlines continuing to fall sharply, as well as bellwethers such as Caterpillar (NYSE:) who would be impacted by a global growth slowdown. It remains unclear whether a resumption of flows through the Strait of Hormuz can be engineered, and over what timeframe, let alone whether the costs of heightened insurance are surmountable. Although are currently pointing slightly higher at this early stage, the moves have dragged each of the main indices into the red in the year to date, with losses of 0.2% for both the and and of 2.1% for the .
It is not often that the monthly report finds itself being secondary to events elsewhere, but it nonetheless retains the ability to move the market. The consensus is that 60000 jobs will have been added in February, as compared to 130000 the previous month, although that figure could be subject to downward revisions. is expected to remain unchanged at 4.3%, but coupled with the possible return of inflation, investors are increasingly resigned to fewer interest rate cuts remaining on the table this year.