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LONDON MARKET CLOSE: Investors cautious as Israel-Iran tensions rise

Stock prices in London closed up on Friday, but investors remained tentative as Israel carried out retaliatory strikes on Iran.

The FTSE 100 index closed up 18.80 points, or 0.2%, at 7,895.85. The FTSE 250 ended down 59.37 points, 0.3%, at 19,391.30, and the AIM All-Share closed up 0.38 of a point, 0.1%, at 745.67.

Across the week, they were down 1.3%, 1.7% and 1.4% respectively.

The Cboe UK 100 ended up 0.2% at 788.44, the Cboe UK 250 closed down 0.3% at 16,792.60, and the Cboe Small Companies ended up 0.1% at 14,785.62.

Oil prices jumped before settling a little lower, after Iran’s state media reported explosions in the central province of Isfahan on Friday. US media quoted officials saying Israel had carried out retaliatory strikes on its arch-rival.

Israel had previously warned it would hit back after Iran fired missiles and drones at Israel almost a week ago, in retaliation for a deadly strike on Iran’s embassy in Syria which Tehran blamed on its foe.

Fears of a major regional spillover from the Gaza war have since soared.

A barrel of Brent oil fell to $87.01 at the London equities close on Friday, from $87.15 at the European equities close on Thursday. It had previously, however, traded as high as $90.71.

‘In a week that started with Iran’s drone and missile attack on Israel and which ended with Israel’s retaliatory strike on Iran, it is somewhat surprising that the price of Brent crude fell. After all, the risk to physical supply of oil has clearly risen with the latest attack on Iran,’ said Capital Economics analyst Caroline Bain.

‘However, we think it is not in the interests of either Iran or Israel to disrupt the regional trade in energy and that, for now, it will be off limits even if retaliatory attacks continue.’

Tensions in the Middle East have also boosted the dollar’s ‘position’, ING analysts said.

Against the dollar, sterling fell to $1.2410 at the London equities close on Friday, from $1.2464 on Thursday. The euro rose to $1.0664 from $1.0660. Against the yen, the buck bought JP¥154.52, down from JP¥154.60.

A recent re-assessment of Federal Reserve interest rate expectations has supported the dollar. The Fed’s most recent projections suggested three rate cuts could be in the offing this year, though at least one of those has been priced out by the market.

New York Fed President John Williams on Thursday said the US central bank feels no ‘urgency to cut interest rates’.

The next Fed decision is on May 1. Another rate hold is expected.

Brown Brothers Harriman commented: ‘The fundamental backdrop of US economic outperformance coupled with hawkish Fed rhetoric remains in play. Fed officials have started to mention the possibility of hikes.

‘To be clear, a hike this year is unlikely. However, just the fact that Fed officials are acknowledging the possibility is a huge shift from its previous intent to begin cutting rates this year. If market pricing were to shift in favour of hikes, the impact on markets would be huge. Stay tuned.’

Stocks in New York were mixed at the London equities close, with the DJIA up 0.4%, the S&P 500 index down 0.4%, and the Nasdaq Composite down 1.1%.

UK retail sales volumes climbed year-on-year in March, but were flat on the month before, numbers showed.

According to the Office for National Statistics, retail sales rose 0.8% in March from a year prior, though were still 1.2% below the pre-pandemic level in February 2020.

Sales had declined 0.3% on-year in February.

Sales were flat in March from February, following a 0.1% rise in February from January. February’s reading was upwardly revised. Retail sales volumes for that month were initially reported to have been flat from January.

The outcome for March fell short of FXStreet-cited market consensus. Growth of 0.3% had been expected.

Pantheon Macroeconomics analyst Rob Wood said that ‘stagnating March retail sales provide a disappointing end to the quarter.’

However, stagnation is a significant turnaround from the large retail volumes falls seen over the past two years, he noted, while retail sales volumes rebounded 1.9% quarter-to-quarter in the first three months of 2024.

This will add 0.1 percentage points to first quarter gross domestic product, he estimated.

In European equities on Friday, the CAC 40 in Paris closed marginally down, while the DAX 40 in Frankfurt ended down 0.5%.

German producer prices fell year-on-year in March, but climbed on-month, numbers showed.

According to Destatis, producer prices declined 2.9% in March from a year prior, easing from a 4.1% annual fall in February.

On a monthly basis, they rose 0.2% in March, topping the FXStreet cited consensus, which had predicted producer prices to be flat from February.

In February, producer prices declined 0.4% from January. Producer prices had risen 0.2% in January from December.

In London’s FTSE 100, Mondi topped gains, rising 9.3%.

The packaging and paper company said it does not plan on making an offer for DS Smith, which lost 9.9%.

In early March, DS Smith and Mondi agreed to an in principal takeover deal, which valued DS Smith shares at 373 pence each. At the time, Mondi said the possible merger would create a company worth more than £10 billion.

On Friday, Mondi said it has considered the value of the takeover to its shareholders, and based on this, has decided against the transaction.

On Tuesday, DS Smith accepted an takeover approach from International Paper Co, a Tennessee-based pulp and paper supplier.

The offer will see DS Smith shareholders receive 0.1285 International Paper shares for every one held in DS Smith. The bid values DS Smith at around £5.8 billion on a fully diluted basis, and its enterprise value at around £7.8 billion.

In the FTSE 250, Man Group led losses, falling 6.6%.

The active investment manager focused on private markets said assets under management on March 31 were $175.7 billion, up 4.9% from $167.5 billion on December 31.

Man Group suffered $1.6 billion in net outflows in the first quarter of 2024, but recorded a positive investment performance of $9.8 billion to create the rise in AuM.

Alternative strategies saw $3.2 billion in net outflows in the recent quarter, balanced by net inflows of $1.6 billion into Long-only strategies.

Elsewhere in London, 888 rose 4.8%.

The sports betting and gambling company, which owns brands including 888casino and William Hill, said first-quarter revenue declined but topped expectations, ahead of a possible name change.

First-quarter revenue was £431 million, down 3.2% on-year but ahead of the £420 million to £430 million it had predicted. 888 noted that revenue was up, however, by 2% from the fourth quarter of 2023.

It explained that this reflects ‘a continuation of positive sequential quarter-on-quarter trends.’ UK & Ireland online revenue alone fell 1% due to ‘reduced sports venues and increased customer investment across the Cheltenham Festival in comparison to last year’, which a 4% growth in gaming could not offset.

888 shareholders will also get a vote on its possible name change to Evoke PLC at its annual general meeting in May.

Gold traded at $2,391.85 an ounce at the London equities close on Friday, up from $2,384.41 late Thursday.

In Monday’s UK corporate calendar, Mobico posts its full-year results.

The economic calendar has the release of the latest interest rate decision for China.

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