Stocks sink and oil soars after Israeli strikes on Iran shake markets

Global stock markets fell on Friday morning as gold and oil prices spiked after Israeli strikes on Iran overnight rattled investor confidence.

The FTSE 100, which closed in on a record high in the previous session, fell 0.5 per cent at the open with losses buffered by strong gains in energy and defence stocks.

Defence giant BAE Systems and energy majors BP and Shell led the blue-chip index in early trading, adding 3.5, 3 and 2.9 per cent respectively, after Brent Crude oil rose more than 5 per cent overnight to as high as $71.45.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: ‘It’s not just the outlook for Iranian [oil] exports that’s a concern but also the potential for disruption to shipping in the Persian Gulf’s Strait of Hormuz, a key route for about 20 per cent of global oil flows and an even higher proportion of liquified natural gas haulage.’

Higher fuel costs and the potential for a hit to demand meant airlines were among the biggest losers on the London Stock Exchange, with British Airways owner IAG and EasyJet falling 4.8 and 4 per cent, respectively.

European and Asian stock markets were also affected, with major indices suffering losses of around 1 per cent. 

Futures markets suggest Wall Street will see a greater fall when US trading opens later today.  

Gold rose 1 per cent gain to trade at $3,435/oz, around 1.8 per cent below its record high of $3,500 set in April and helping to lift the shares of London-listed miners Endeavour and Fresnillo.

The FTSE 250 saw a sharper fall of 1.1 per cent as the dollar rose and sterling came under pressure, despite strong gains from energy stocks.

ING FX strategist Francesco Pesole said it had been a ‘rather negative’ week ‘for the pound’s domestic drivers’, citing the impact of disappointing GDP and labour market figures, and suggested sterling could face further weakness ahead.

He added: ‘Cable has potentially a wide room for downside correction given how expensive it looks relative to rate differentials.

‘But we have seen how structurally bearish USD bets are preventing dollar gains from being sustainable. So we’d be more cautious on that side.’

But Richard Hunter, head of investment at Interactive Investor said further geopolitical instability could be to the advantage of the FTSE 100.

He said: ‘Despite the initial reaction to the news overnight, the premier index could attract some renewed buying interest given the stability and maturity of many of its constituents, as well as its exposure to sectors such as defence and the financials, which have all been strong performers of late.

‘Global investors have been seeking alternatives given the volatile backdrop and for the time being the likes of the FTSE 100 seem to fit the bill.’