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FTSE100 outperforms as markets slide and Israel strikes back

Israeli helicopters flying towards Tel Aviv and over smoking buildings

European markets have slipped back as the tremors of the weekend events in Israel continue to reverberate through financial markets.

Europe

A sharp rise in energy prices, along with concerns over an escalation outside the current counterparties of Hamas and Israel, as Israeli forces hit back hard, is keeping investors on edge, although the FTSE100 has been a notable outlier due to a strong performance in the energy sector as well as defensives.

The move higher in oil prices and natural gas prices has seen airline, as well as other leisure stocks slide, and the big cap oil stocks move higher.

easyJet, Wizz Air and British Airways owner IAG are all down heavily, as is Holiday Inn owner Intercontinental Hotels, while BP and Shell have edged higher.

With geopolitical uncertainty increasing, the defence sector has also received a boost with defence contractor BAE Systems moving higher, along with the likes of QinetiQ and Chemring on the FTSE250.

Chemicals firm Croda International has also had a disappointing day after downgrading its expectations for full year profits to between £300m and £320m, from £370m and £400m, blaming weak industrial demand, as clients reduce their demand for ingredient inventories.  

Metro Bank shares have rebounded after managing to secure a new £925m funding deal which sees shareholders diluted again with the main equity top-up coming from existing shareholder Spaldy Investments which sees its stake rise from 9.2% to 53% with a boost of £102m.

As part of the new package Metro Bank will write down the value of £250m of tier 2 bonds by 40%. Other bondholders will provide an additional £175m of senior bonds while there will also be £150m of new equity which is being priced at 30p a share.

US

US markets have taken their lead from the weakness in European markets, opening lower as the ripple out effects of the weekend continue to reverberate across the world. 

It’s been a similar story sector wise for the outperformers as well as the underperformers with the weakness being seen in European airlines translating into similar declines for US carriers with Delta, American and United Airlines all lower in early trade, with flight cancellations to the affected regions also impacting. 

Exxon Mobil and Chevron on the other hand have edged higher, rebounding from the lows of last week, along with oil and natural gas prices.

Defence contractors Lockheed Martin and Northrop Grumman are also seeing strong gains.

FX

It’s been a bit of a mixed bag of a day for the US dollar, losing ground against the likes of the Canadian dollar and Norwegian Kroner on the back of higher oil prices, while making gains on haven demand against the likes of the euro and the pound which are the worst performers and the most susceptible to a sharp rise in energy prices.

A strong Friday payrolls report hasn’t hurt the greenback either given that it raises the prospect that we might see another rate hike from the Federal Reserve in a few weeks’ time, although a weak CPI report later this week could undermine that narrative.  

Commodities

The raising of the geopolitical temperature in the Middle East has seen a strong rebound in crude oil prices which has seen some of last weeks big losses get reversed. For now, there hasn’t been any significant disruption to supply which should temper the upside risk, however in a sign of the risks if that were to happen, natural gas prices have surged after Israel asked Chevron to halt production at its Tamar field in the wake of the weekend attacks by Hamas. The announcement of new strikes at Australia’s LNG facilities from October 19th isn’t helping either.

Gold prices have seen a sharp rally off last weeks lows as haven demand pushes it to its highest level this month.


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