Once again the FTSE 100 was protected from the worst of the falls on Thursday as its higher exposure to the energy sector helped support the UK stock index.
Nonetheless, UK stocks were still in the red as investors reacted to ongoing disruption to energy markets from the Middle East conflict. Oil prices surged through the $100 per barrel mark for the second time this week.
Defence and defensive stocks were in demand as investors looked for places to hunker down and ride out the current turbulence.
Psychologically, oil being above $100 is a red alarm bell for the market in the way a price of $99.99, while a negligible difference on paper, wouldn’t be.
Iran has warned of $200 oil as it continues to target key infrastructure and the shipping routes through the Strait of Hormuz.
While it is in Iran’s interests to engage in this sort of wild speculation, the longer we go without a viable path to de-escalation the bigger the impact this energy shock is likely to have.
One knock-on effect from a world of higher oil and gas prices is to potentially make the economics of renewable energy more attractive. German utility RWE, which has significant exposure to renewables, has reported better-than-expected results. Its next big venture involves gas-fired power plants in the US as it looks to tap into the AI-driven data centre boom.
Fortunately for RWE, the US is self-sufficient in natural gas so these plans, even if the rise in gas prices elsewhere proves long lasting, should be relatively unaffected.
Shawbrook
Six months after its return to the UK stock market, specialist lender Shawbrook is nearly back to its 2025 IPO price after an initial rally.
Net income was marginally below expectations, but otherwise it was a solid performance in its full-year results.
It’s likely that investors were disappointed that management didn’t upgrade medium-term guidance. One would have thought sticking to guidance shows a resilient business with confidence in what it can achieve. Unfortunately, investors often have high expectations and continuously want more.
John Lewis
Storied UK retailer John Lewis has been battered and bruised for most of this decade as it suffered the impact of Covid and a tricky consumer backdrop coming out of the pandemic.
The return of staff bonuses after four years – as the business once again turns out a profit – feels like a milestone in its recovery.
A return for the ‘never knowingly undersold’ pledge has been key as chair Jason Tarry, who formerly headed up Tesco’s UK and Ireland business, has looked to put the focus back on John Lewis’ longstanding strengths as a retail entity.
John Lewis has invested in its stores to secure their place as attractive destinations for shoppers and partnered up with key brands to help get more people through the doors.
The bit extra in staff pay packets will be especially welcome given the John Lewis workforce, like many others, faces the prospect of another hit to their pockets from the latest energy market shock.
On The Beach / Travel sector blues
Dan Coatsworth, head of markets at AJ Bell, comments:
The Middle East crisis has caused massive turbulence in the travel industry as costs race higher and flight networks are disrupted. Now comes the slump in demand as holiday seller On The Beach reveals a significant slowdown in bookings for prime holiday destinations Turkey, Greece, Cyprus and Egypt.
People will be worried about the tensions in the Middle East and whether they might expand further afield. Last week’s evacuation of Paphos airport in Cyprus after a drone threat may have planted the seed that countries surrounding the Middle East may not be safe.
Anyone hoping for a quiet week away for sun, sea and sand might be spooked at this advice and immediately cross Cyprus off their wish list for 2026, and consider neighbouring countries as additional no-go destinations. No-one knows how long the Middle East crisis will last and so the natural response is to look for holiday locations as far away from the troubles as possible.
It’s no wonder that On The Beach has withdrawn its full-year earnings guidance. It’s impossible to say with confidence how much business will come its way over the coming months. If the Middle East crisis is prolonged, there is a big chance that UK holidaymakers might opt for a staycation this year and not risk the hassle and stress of wondering if their foreign travels will be upended.
The travel industry is braced for considerable volatility, as illustrated by Air New Zealand cutting more than 1,000 flights in the wake of soaring fuel costs. Plenty of airlines have already suspended flights to Middle East destinations for the foreseeable future, but it looks like this trend might spread further afield if demand weakens more broadly and oil prices stay at elevated levels.
Airlines will need to have their planes at full capacity to warrant taking off in a high oil price environment, otherwise it’s not worth their while taxiing to the runway.
It’s hard to imagine airlines starting a price war in the near-term. The industry would normally slash ticket prices when demand weakens to try and drum up more business, but the economics might not stack up at a $100 a barrel oil price. Airlines typically lock in a chunk of fuel costs at a fixed price, but they won’t be immune from the recent oil price spike completely.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
