Early market roundup: "Exuberance" ebbs as oil price climbs again

Stocks in Europe were lower on Wednesday morning as higher yields and rising energy prices hit risk sentiment.

"The exuberance which washed over financial markets after energy prices dipped slightly has faded, with renewed attacks in the Middle East demonstrating how a resolution to the crisis remains elusive," Wealth Club analyst Susannah Streeter commented.

Among individual shares, eyes were on Pennon in London, as the water utility announced a plan to up investment, part-funded by a share issue and dividend cut.

The FTSE 100 index fell 56.05 points, 0.5%, at 10,485.64 early Wednesday. The FTSE 250 lost 79.67 points, 0.3%, at 24,135.66, and the AIM all-share declined 2.65 points, 0.3%, at 780.97.

The Cboe UK 100 fell 0.5% at 1,041.06, the Cboe UK 250 declined 0.3% at 20,986.69, and the Cboe small companies was flat at 18,861.43.

In European equities on Wednesday, the CAC 40 in Paris lost 0.7%, while Frankfurt's DAX 40 shed 0.8%.

Sterling fell to USD1.3247 early Wednesday, from USD1.3280 at the time of the London equities close on Tuesday. Against the euro, it was at EUR1.1793, barely budging from EUR1.1791.

The single currency fell to USD1.1228 from USD1.1264. Versus the yen, the greenback bought JPY158.41, rising from JPY158.07.

In the US on Tuesday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.5%, the S&P 500 up 0.6% and the Nasdaq Composite up 0.5%.

"A hawkish dot plot in September suggests today's FOMC minutes shouldn't surprise on the dovish side. At the same time, softish post-meeting data probably raise the bar for a positive dollar reaction today. Eyes should remain on oil, which is back on the rise this morning, and France, which is enjoying some relief in sovereign spreads," ING analysts commented.

The minutes of September's Federal Open Market Committee meeting are released at 1900 BST.

"Markets are still looking for greater clarity on the data-policy reaction function, particularly which inflation outcomes would justify another hike this year. The minutes should also offer some insight into any dovish dissent. However, with the dot plot showing more members expecting two further hikes this year (4) than no further tightening (2), the scope for a dovish surprise appears limited. At the same time, data has been softish since the September hike and markets continue to firmly price a December move, setting a relatively high bar for a positive USD reaction," ING analysts added.

Going into the minutes, Treasury yields were widening again.

The yield on the US 10-year Treasury was quoted at 5.32% early Wednesday, widening markedly from 5.27% at the time of the closing bell on the London Stock Exchange on Tuesday. The yield on the US 30-year Treasury was at 5.69%, stretching from 5.63%.

Yemen's Houthis said Wednesday they had targeted King Khalid International Airport in the Saudi capital with a ballistic missile, the latest in repeated salvos aimed at the site.

"Our armed forces have just targeted King Khalid Airport in Riyadh with a ballistic missile. The strike was accurate, by God's grace, and led to a disruption of air traffic at the airport," said Houthi military spokesman Yahya Saree in a statement on X.

In a separate post the Houthis said they also targeted an area near the airport in the interim government capital of Aden.

A barrel of Brent rose to USD101.54 on Wednesday, from USD98.37 late Tuesday afternoon. Gold declined to USD4,136.32 an ounce from USD4,163.00.

Deutsche Bank analysts said there has been a "sizeable round trip in oil prices".

"Brent crude fell towards USD97/bbl early in the US session amid optimism on oil flows coming out of the Middle East. However, this gave way to caution later on news of increased Iranian strikes against tankers passing through the Strait of Hormuz and as Iran's IRNA reported that a blast was heard off Qeshm island near Hormuz. This brought Brent crude back up to USD100.58/bbl by the close, and it is another 1.01% higher this morning."

"With bonds selling off and oil rallying, the mood in Asia is softer this morning."

In Tokyo, the Nikkei 225 ended down 0.9%. The Hang Seng Index in Hong Kong was 0.5% lower in afternoon dealings. Markets in Shanghai remain closed. Sydney's S&P/ASX 200 lost 0.1%.

In London, Pennon shares slumped 16%. The water utility is to invest £1 billion more than expected as part of the sector's latest regulatory framework, as the company's boss admitted "there are areas where we need to improve and deliver better outcomes".

Capital investment in the regulated water businesses during the AMP8 cycle for the water industry is now expected to be around £3.6 billion, some £1 billion more than its original plan.

Pennon has set out a funding plan, which includes a £550 million fully underwritten rights issue of 220.3 million new shares at 250 pence each, on the basis of 7 new shares for every 15 existing ones owned. The rights issue price is a 36% discount to a theoretical ex-rights price, based on its 452p closing price on Tuesday. Pennon said it will also rebase its annual dividend, to around £125 million, from £138 million a year prior. Taking into account the rebased payout and rights issue, the implied dividend cut is around 30% at 18p each, Pennon added.

It adds: "Pennon's dividend policy will continue to be to grow dividend per share in line with [the consumer price index including owner occupiers' housing costs] from this rebased level."

Avon Technologies jumped 11% as the military and law enforcement protection equipment manufacturer said it "has seen strong momentum in recent months".

Avon Technologies now expects 2026 results "ahead of current market expectations". It predicts revenue growth of 13% and an adjusted operating profit margin "comfortably above our guided 14-16% range".

"Avon Protection continues to see healthy demand through the NSPA programme, with several new European orders received. In Team Wendy, order book has grown materially during the second half," it added.

NSPA is the Nato Support & Procurement Agency.

Elsewhere in London, Likewise shares rose 8.3%. The floor coverings distributor acquired a number of assets from Headlam Group from administrators for £14.9 million.

"The acquisition is a significant step for the group. Following Headlam's administration and the acquisition, the board believes Likewise is the largest floor coverings distributor in the UK, with an enlarged brand portfolio, additional freehold distribution capacity and a broader customer base. The acquisition will further support the group in achieving its goal of £300 million of revenue in the medium term," Likewise added.

Headlam shares are currently suspended from trading, and the company plans for them to be cancelled.

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