London close: Stocks weaker on rising Middle East tensions

(Sharecast News) - London equities closed in the red on Friday, as investors reacted to heightened geopolitical tensions following Israeli strikes on Iranian nuclear facilities. The FTSE 100 index slipped 0.39% to finish at 8,850.63 points, while the FTSE 250 dropped 1% to 21,173.33 points.

In currency markets, sterling was last down 0.1% on the dollar to trade at $1.3600, while it edged up 0.08% against the euro, changing hands at €1.1760.

"The unprecedented scale of Israel's attack on Iran and retaliation by the latter provoked an initial over 10% surge in the oil price and a 5% rise in European natural gas prices," said IG senior technical analyst Axel Rudolph.

"The gold price rose to a lesser degree, by around 1.5%, as global stock indices fell. The declines were relatively mild, though, by between -1% and -1.5%, as some investors hoped for a de-escalation.

"The weekend will show whether this or an escalation is on the cards."

Rudolph said that either way, a protracted conflict in the Middle East was likely to lead to higher oil prices and increased inflationary pressures in the medium-term.

"Heightened tensions in the Middle East are likely to lead to interest rates remaining where they are at next week's Bank of Japan, Fed and Bank of England meetings as central banks assess the geopolitical situation and potential drivers of inflation before making any decisions.

"As an aside, the eurozone trade surplus fell in April as US tariffs weighed on exports."

Israel attack on Iran weighs on sentiment

In economic news, oil prices soared earlier after Israel launched a large-scale air strike on Iran, targeting nuclear and military sites.

The escalation sparked a flight to safety, lifting gold 1% to $3,417 per ounce, while the dollar strengthened against major currencies.

Israel's strikes reportedly involved around 200 aircraft and targeted uranium enrichment facilities and senior Iranian military figures.

Tehran claimed no damage to its oil infrastructure, but investors remained on edge over potential retaliation and disruption to supply routes, particularly the Strait of Hormuz.

Analysts warned that any further escalation could have wide-reaching consequences for global energy markets and investor sentiment.

Elsewhere, economic data added to the cautious mood. Eurozone industrial production fell 2.4% in April, sharply reversing the previous month's gain and missing expectations.

The downturn was broad-based, with energy output leading declines.

Germany and France both reported weaker output, while trade data showed the eurozone's surplus narrowing to €9.9bn as exports slipped and imports edged higher.

"After the strong surge in the first quarter on the back of the US front-loading of Eurozone goods ahead of higher tariffs, industrial production showed the expected reversal," said Carsten Brzeski, global head of macro at ING.

"The eurozone manufacturing sector is currently highly affected by two main factors: the cyclical turning on the inventory cycle and Donald Trump's tariffs.

"US tariffs and again highly elevated geopolitical risks provide reasons enough against any premature optimism."

On home shores, UK retail footfall dropped 1.7% year-on-year in May, according to the BRC-Sensormatic monitor.

High streets and shopping centres posted the steepest falls, with only retail parks showing a marginal gain.

The data pointed to a slowdown in consumer activity heading into summer, with declines recorded across all four nations.

"Despite favourable weather throughout May, footfall took a disappointing turn last month, following a more promising start to the year," said British Retail Consortium chief executive officer Helen Dickinson.

"While stock markets stabilised, higher household bills depressed consumer sentiment and the appetite to visit retail stores.

"Retail parks performed the best of all locations, though only registering a slight uptick in shopper traffic."

Defence and energy names rise, travel stocks in the red

On London's equity markets, BAE Systems rose 3.32%, and Babcock International gained 2.03%, as investors turned to defence stocks following Israel's air strikes on Iranian military and nuclear sites.

The conflict also boosted commodity prices, supporting oil majors BP and Shell, which added 1.18% and 0.4%, respectively.

Fresnillo advanced 2.33% as gold prices rallied on safe-haven demand.

"Reports suggest that this is the biggest attack Iran has faced since the 1980s," said Kathleen Brooks, research director at XTB.

"Rumours have swirled all week that an attack was imminent, which is why the Brent crude oil price is higher by 11% in the past few days."

Brooks said the sheer scale of the attack and the potential devastating consequences for the region are likely to support the oil price at elevated levels.

"Typically, geopolitical risks do not have a long-term impact on the oil price, however, this is a complex and evolving situation.

"Iran supplies the world with 5% of the global oil supply, so there is a risk that oil supply could be disrupted.

"This is why the oil price has surged, although it has pulled back from the 13% rise overnight."

In contrast, airline stocks were sharply lower.

British Airways and Iberia parent International Airlines Group dropped 4.23%, easyJet fell 2.97%, and Wizz Air slid 5.32%, as rising fuel costs weighed on the sector.

Broader travel names also declined, with InterContinental Hotels Group down 2% and Carnival losing 4.31%.

Energean fell 5.33% after suspending operations at its floating production unit offshore Northern Israel due to the regional security situation.

Oxford Instruments slipped 2.36% despite posting record revenues above £500m and launching a £50m share buyback.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,850.63 -0.39% FTSE 250 (MCX) 21,173.33 -1.00% techMARK (TASX) 5,084.85 -0.71%

FTSE 100 - Risers

BAE Systems (BA.) 1,939.00p 2.86% Fresnillo (FRES) 1,445.00p 2.19% Babcock International Group (BAB) 1,052.00p 1.94% Tesco (TSCO) 398.20p 1.69% BP (BP.) 386.35p 1.48% Glencore (GLEN) 291.70p 1.41% Next (NXT) 12,770.00p 1.15% Sainsbury (J) (SBRY) 286.80p 1.06% British American Tobacco (BATS) 3,588.00p 0.96% Marks & Spencer Group (MKS) 372.50p 0.94%

FTSE 100 - Fallers

International Consolidated Airlines Group SA (CDI) (IAG) 316.70p -3.68% Schroders (SDR) 355.80p -3.42% easyJet (EZJ) 543.60p -2.72% Intermediate Capital Group (ICG) 1,921.00p -2.54% GSK (GSK) 1,511.50p -2.45% CRH (CDI) (CRH) 6,692.00p -2.19% Rolls-Royce Holdings (RR.) 870.00p -1.96% Unite Group (UTG) 825.50p -1.96% SEGRO (SGRO) 691.60p -1.90% Whitbread (WTB) 2,787.00p -1.84%

FTSE 250 - Risers

Ithaca Energy (ITH) 163.00p 5.16% Harbour Energy (HBR) 208.00p 4.84% Hochschild Mining (HOC) 258.20p 4.28% Harworth Group (HWG) 176.00p 3.53% SDCL Efficiency Income Trust (SEIT) 49.10p 3.37% Endeavour Mining (EDV) 2,400.00p 2.92% Ferrexpo (FXPO) 49.55p 2.91% Mobico Group (MCG) 26.72p 2.85% QinetiQ Group (QQ.) 518.00p 2.57% Playtech (PTEC) 325.00p 2.20%

FTSE 250 - Fallers

Wizz Air Holdings (WIZZ) 1,118.00p -5.65% Energean (ENOG) 817.00p -5.06% ICG Enterprise Trust (ICGT) 1,344.00p -4.27% Crest Nicholson Holdings (CRST) 188.60p -4.22% Just Group (JUST) 138.00p -3.90% Oxford Instruments (OXIG) 1,800.00p -3.85% Ninety One (N91) 172.70p -3.52% Carnival (CCL) 1,503.50p -3.37% Genuit Group (GEN) 381.50p -3.30% Ocado Group (OCDO) 255.00p -3.23%