Early market roundup: Stocks down on Middle East escalation worry

Stock prices in Europe were lower on Thursday morning as the oil price surged on reports that the US is looking to resume strikes on Iran.

A hawkish set of Federal Reserve meeting minutes, meanwhile, supported the dollar.

The FTSE 100 index fell 64.30 points, 0.6%, at 10,394.20 early Thursday. The FTSE 250 shed 181.49 points, 0.8%, at 23,855.26, and the AIM all-share declined 3.63 points, 0.5%, at 772.35.

The Cboe UK 100 fell 0.6% at 1,031.36, the Cboe UK 250 declined 0.7% at 20,733.90, and the Cboe small companies opened down 0.1% at 18,762.50.

In European equities on Thursday, the CAC 40 in Paris lost 0.9% and Frankfurt's DAX 40 declined 1.0%.

In the US on Wednesday, Wall Street ended lower, with the Dow Jones Industrial Average down 0.7%, the S&P 500 down 0.2% and the Nasdaq Composite down 0.2%.

In Tokyo on Thursday, the Nikkei 225 plunged 1.4%. In China, the Shanghai Composite fell 0.8%, as traders returned to desks following the Golden Week break. In Hong Kong, the Hang Seng Index was 1.3% lower in late trade. Sydney's S&P/ASX 200 ended 0.8% lower.

A barrel of Brent jumped to USD103.96 on Thursday morning from USD101.77 late Wednesday afternoon, as reports suggested an escalation in the US-Iran war may be in the offing.

The Atlantic reported the White House has asked the Pentagon to look at strike options on Iranian targets. Citing two administration officials, The Atlantic reported strikes could be made ahead of the US midterm elections on November 3.

A separate report from Axios said the Pentagon called on Central Command to finalise preparations for a resumption of combat operations in Iran.

The US and Iran remain at odds over who controls the Strait of Hormuz, a vital shipping route for global energy supplies.

"The US and regional partners clearly control the strait," US Central Command, which oversees military operations in the region, said on X.

"Earlier today, a general from Iran's Islamic Revolutionary Guard Corps claimed in media reports that 'the Strait of Hormuz is closed' and his country has 'full control over it.' This is FALSE," CENTCOM said.

Iran has largely disrupted shipping through the strait, a crucial route for global oil, gas and fertilizer supplies, through threats and attacks on vessels. The US military has also attacked Iranian civilian vessels and imposed a naval blockade on ships entering or leaving Iranian ports.

Analysts at Lloyds Bank commented: "Prediction markets now imply less than a 50% probability that traffic flows through the Strait of Hormuz will have returned to normal by July 2027, a marked deterioration from the optimism seen earlier this summer.

"Each flare-up since the onset of the Middle East conflict has initially traded as a temporary disruption, only for expectations of normalisation to be pushed further into the future. The pattern appears to be repeating; recent developments have highlighted the fragility of the recovery, with vessel attacks accelerating and fears of a conflict intensification heightening, amid a hardening of diplomatic rhetoric."

The dollar was largely higher against major counterparts. The pound fell to USD1.3200 early Thursday from USD1.3210 late Wednesday afternoon. Against the euro, sterling fell to EUR1.1788 from EUR1.1807. On Wednesday, sterling hit its best level versus the single currency since June 2025.

The euro rose to USD1.1193 from USD1.1187. Against the yen, the buck climbed to JPY158.22 from JPY158.13.

Federal Reserve officials expect to raise interest rates once more this year as they look to bring inflation back to 2% target, minutes published on Wednesday showed.

"With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end," the minutes of the September 15-16 Federal Open Market Committee meeting said.

But officials were more coy as to when exactly the next rate rise will be.

"Participants emphasized, however, that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks," the minutes stated.

The Federal Reserve has two meetings left this year with interest rate decisions on October 28 and December 9.

At its September meeting, the US central bank voted 12-0 to raise rates by 25 basis points, taking the target range for the federal funds rate to 3.75%-4.00%. It was the first rate hike since July 2023. Since then, the Federal Open Market Committee has lowered rates six times for a total of 175 basis points.

The yield on the US 10-year Treasury was quoted at 5.33%, widening from 5.32% at the time of the London equities close on Wednesday. The yield on the US 30-year Treasury was quoted at 5.71%, widening from 5.69%. The 30-year yield shot up above 5.73% on Wednesday, its loftiest level since April 2002.

On Wednesday, the UK 30-year gilt hit its highest level since 1998, as European sovereign bond prices remain under pressure also. Prices move inversely to yields.

France was the "epicentre" of bond market turmoil on Wednesday, however, according to Deutsche Bank analysts.

"At one point in the session, the Franco-German 10 year spread was on course for its biggest daily jump since the pandemic turmoil in March 2020, although it partially pulled back by the close to 'only' rise +12.3bps on the day," Deutsche Bank analysts commented. "Whilst there have been clear short-term catalysts for the recent move, including another round of oil price gains, there's a long-term fundamental story of how French debt has been on an unsustainable trajectory for many years."

"In terms of the last 24 hours, it was clear that European contagion risk was back on the agenda, as there was a sharp widening in the spreads of multiple countries. So that marked a change in the mood relative to the last few days, as the financial market stress had generally been easing since last Friday. While there wasn't a single driver of the renewed sell-off, the investor mood arguably wasn't helped by comments from Bank of France Governor Moulin, who said that while the situation in France's bond market was complicated 'the conditions are not met today for an intervention from the ECB'."

Gold perked up to USD4,120.91 an ounce on Thursday, from USD4,109.52 late Wednesday afternoon.

In London, Tesco and Imperial Brands shares each rose 3.4%, the best FTSE 100 performers.

Tesco said consumers remained "resilient" as it delivered better-than-expected first half profit supported by growing online sales.

The Welwyn Garden City, England-based grocer said pretax profit rose 12% to £1.46 billion in the 26 weeks ended August 29 from £1.31 billion the year prior.

Adjusted operating profit increased 6.5% to £1.78 billion from £1.67 billion, beating Visible Alpha consensus of £1.72 billion.

Revenue, excluding VAT and including fuel, grew 3.7% to £37.35 billion from £36.04 billion.

For the financial year as a whole, Tesco now expects adjusted operating profit between £3.15 billion and £3.30 billion, the bottom end of guidance raised from £3.00 billion. It continues to expect free cash flow of between £1.5 billion and £2.0 billion, in line with its medium-term guidance range.

Reflecting a strong cash flow performance, Tesco increased its share buyback to £950 million from £750 million.

Imperial Brands has announced a new share buyback of £1.5 billion, as it hailed "strong momentum behind our transformation". The owner of the Davidoff and Gauloises cigarette brands, as well as Rizla rolling paper and blu e-cigarettes, said it is "on track" to report earnings in line with guidance for the year ended September 30.

Imperial Brands said it will report a "sixth consecutive year of tobacco net revenue growth" at constant currency and it expects to post double-digit Next Generation Products growth.

NGP products include its vaping and heated tobacco range. Driving tobacco growth is "robust pricing and share gains in our target segments in US and Germany" but it has low-single-digit volume declines at group level.

"We continue to build scale in NGP and expect to grow share in all three categories, with double-digit net revenue growth. We are seeing strong momentum in heated tobacco with Pulze 3.0 and new iD sticks, in vape, our blu kit range continues to perform well and in modern oral our existing portfolio of growing brands, including Zone and Skruf, has been enhanced by the acquisitions of Black Buffalo in the US and Helwit in Sweden," it added.

Adjusted operating profit growth is expected within its 3% to 5% range at constant currency, and it expects to report high-single-digit adjusted earnings per share growth.

Elsewhere in London, Jubilee Metals rose 6.4%. It said legal due diligence on the proposed disposal of the large waste project has now been completed.

The London-based metal processing company operating in Zambia late in August agreed to sell its large waste project for USD35.0 million after choosing a preferred bidder.

On Thursday, the company said it expects the USD2.25 million deposit to be paid within the next few days after legal due diligence, which focused on the contractual and regulatory legal framework governing the project.

The USD2.25 million payment secures a further 45-day period of exclusivity during which the further technical due diligence will be undertaken, it said.

Still to come on Thursday is a US initial jobless claims reading at 1330 BST.

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