Daily market update: FTSE 100, government bond yields and oil prices elevated, Ryanair

After finishing the previous week with heavy losses, the FTSE 100 made an uncertain start on Monday as the list of market worries continues to build.

Hopes that a resolution between the US and Iran might be in sight continue to ebb away and that’s reflected in oil prices ticking higher. Meanwhile movements in government bonds imply a lasting and potentially worsening inflationary impact from the crisis.

Gilts have been extra volatile thanks to the domestic political situation in the UK on top of inflation worries. A by-election in Makerfield in around a month’s time looks set to mark the next staging post in a leadership race for the governing Labour Party.

It could mean weeks of speculation about the different approaches the various runners and riders might take to the economy. This situation is unlikely to calm the nerves of bond traders.

Weak Chinese economic data adds to a cocktail of worries which is difficult for investors to swallow. Miners, housebuilders, aviation and financial stocks were among those to struggle in London, with energy stocks and defensive names in demand.

Capita bucked the market trend as trading stayed in line with forecasts and the company’s restructuring efforts remained on track. After a miserable decade for the share price, investors will be glad of some relief over the last 12 months or so.

Ryanair

Ryanair is shielded from much of the cost pressures linked to the Middle East conflict which has driven up the cost of oil, but it doesn’t have full protection.

It has locked in 80% of its fuel requirements until April 2027 at much lower prices than it would pay on the market today, giving it a major cost advantage against many rivals. However, the remaining 20% of the fuel requirement is fully exposed to market gyrations and the pain is beginning to be felt.

Cost pressures are tightening like a vice across multiple parts of its business. In addition to fuel, it is also shelling out more for maintenance and labour, and EU environmental taxes are edging higher.

Under normal circumstances, Ryanair would respond to cost pressures by putting up fares and passenger charges, but the market environment is currently too fragile to go down that road. Consumers are spooked by oil prices shooting up since March and remaining relatively high. It’s made the cost of living go up, and that drives more caution towards spending.

Airlines and holiday companies are having to drop prices, or at best keep them level, just to keep demand ticking over. If cost pressures remain intense, they will have no choice but to put prices up. Fortunately, Ryanair has a strong enough balance sheet to weather any storms.

Talks have neared a conclusion to keep Michael O’Leary as chief executive for an extra four years, taking his contract to April 2033. Ryanair is now set to discuss leadership with its biggest shareholders, and it is hard to imagine any would object to O’Leary staying on longer. He has been the driving force behind significant strategic progress, keeping a lid on costs while continuously finding new ways to earn from customers.

Reliability, efficiency and scale are vital drivers for success in the aviation industry – and Ryanair has these in spades.