The FTSE 100 closed marginally higher on Tuesday, outperforming its European counterparts as rising oil prices lifted the index’s energy heavyweights.
The blue-chip index closed up 7.74 points, or 0.1%, at 10,728.04, while the FTSE 250 fell 142.97 points, or 0.6%, to 24,561.43.
The AIM All-Share also declined, closing down 6.50 points, or 0.8%, at 794.25, reflecting the cautious mood across broader UK markets.
Oil prices crossed the 90 US dollar mark once more as hopes faded for an imminent reopening of the Strait of Hormuz, with Brent crude for October delivery trading at 91.17 dollars a barrel, up from 89.07 dollars late on Monday.
US President Donald Trump said on Tuesday that no talks with Iran are under way or planned, adding on Truth Social: “There are no talks or conversations going on, or scheduled, with the Islamic Republic of Iran. The Naval Blockade remains in full force and effect. The Hormuz Strait is open and operating. All water mines have been removed or detonated.”
Dan Coatsworth, head of markets at AJ Bell, described the oil price moves as both a “pain and a gain for UK investors”, noting the situation is “bad for businesses and consumers, but good for the FTSE 100’s oil heavyweights BP (BP.L) and Shell (SHEL.L) who propped up the UK blue-chip index amid a broader European market pullback.”
BP (BP.L) rose 2.7% and Shell (SHEL.L) gained 1.8%, while on the FTSE 250, Harbour Energy climbed 1.5% as the energy sector broadly benefited from the supply concerns.
Coatsworth warned that “efforts to bring an end to the war have not been successful, and reports suggest Iran will now become more aggressive,” raising the prospect of further disruption to Middle Eastern oil supplies.
He added that the risk of inflation and potential interest rate hikes are “front of mind for investors,” with the scenario described as negative for equities as “it can dampen risk appetite.”
Bond markets added to the cautious tone, with the US 30-year Treasury yield reaching a 19-year high of 5.33%, while the UK 30-year gilt traded at 5.85%, its highest level since May this year.
Coatsworth noted that “rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears,” adding they can “reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds.”
On the labour market, figures from the Office for National Statistics showed the UK unemployment rate held steady at 4.9% in the three months to June, missing expectations of a fall to 4.8%.
Year-on-year average earnings growth, excluding bonuses, came in at 3.5% for April to June, topping the consensus forecast of 3.4%, while total pay including bonuses rose 4.1%.
Job vacancies declined to an estimated 707,000 in May to July, the lowest level since the Covid-19 pandemic period of February to April 2021, when 657,000 vacancies were recorded.
James Smith, economist at ING, said: “The basic story here is that the jobs market is cool,” adding there is “little sign that wage growth is about to turn higher,” which will be a key consideration for the Bank of England.
Among individual stocks, Kainos soared 21% after the London-based IT services firm raised its revenue and earnings guidance, saying its annual results will be “comfortably ahead” of current market expectations.
Frasers Group rose 2.1% after increasing its stake in Hugo Boss to just under 48%, following valid acceptances for 12.2 million Hugo Boss shares as part of its voluntary public takeover offer at 38.00 euros per share, which Hugo Boss has told shareholders to reject as “inadequate from a financial point of view.”
In European markets, the CAC 40 in Paris and the DAX 40 in Frankfurt both fell 0.8%, while US stocks also declined, with the Dow Jones down 0.3%, the S&P 500 off 0.6%, and the Nasdaq Composite falling 1.3%.
Markets will turn their attention on Wednesday to UK consumer and wholesale inflation figures, eurozone trade data, and the minutes of the last Federal Open Market Committee meeting.