UK stocks drop to over one-month low as oil prices fuel inflation worries

UK Stocks Slide to 1-Month Low as Surging Oil Prices Stoke Inflation Fears

Market Reaction to Escalating Middle East Conflict and Oil Price Surge

Sept 9 (Reuters) - London's FTSE indexes fell in a broad-based selloff on Wednesday as signs of an escalating conflict in the Middle East sent oil prices to above $100 a barrel, spurring worries about energy-related inflation.

FTSE Index Performance

The blue-chip FTSE 100 index slipped 1.31% to 10,670.06 points at close, its lowest since late July. The midcap FTSE 250 fell 0.99% to its lowest since early August.

Oil Prices and Market Sentiment

• Benchmark Brent crude oil futures rose past $100 a barrel, breaching the symbolic barrier for the first time since July 24 as U.S. and Iran both struck vessels, escalating the ongoing conflict. [O/R]

Sector and Stock Movers

• Most sectors saw losses: heavyweight banks were the biggest drag, with HSBC down 1.6%, Barclays off 2% and Lloyds Banking sliding 2.2%.

• Healthcare major AstraZeneca dipped 1.9%, defence firm Rolls-Royce shed 2.4% and consumer staples major Unilever eased 1.6%.

• "Brent crude pushing above $100 a barrel has had a psychological effect on the market, pushing a hypothetical inflation worry gauge to 'serious' status and dragging down financial assets," said Dan Coatsworth, head of markets at AJ Bell.

• Oil majors were a rare bright spot, with BP and Shell rising 1.3% and 0.1% respectively and the FTSE 350 energy index hitting a more than four-month high before paring gains.

Bond Market and Economic Outlook

• Bond markets were also selling off, the yield on the 2-year gilt hitting its highest since November 2023.

• British assets are particularly susceptible to energy shocks given UK's status of a net oil importer.

Investor Focus and Rate Expectations

• Investors are closely watching a key U.S. inflation report and economic growth data in the UK this week, that could influence interest rate expectations from central banks.

• Markets are pricing in a 60% chance the U.S. Federal Reserve will hike rates next week but widely expect the Bank of England to stand pat on rates, as per LSEG-compiled data.

Notable Stock Moves

• Burberry slipped 4% after HSBC downgraded the luxury goods maker to "hold" from "buy".

• Polymer maker Victrex gained 16.2% after raising its annual underlying profit before tax forecast.

• Eastern Mediterranean-focused gas producer Energean rose 9.3% after posting a 45% jump in first-half profit.

Reporting Credits

(Reporting by Anand Gopal and Purvi Agarwal in Bengaluru; Editing by Nivedita Bhattacharjee and Shailesh Kuber)