The FTSE 100 closed in positive territory on Wednesday, bucking a downward trend across US and European markets amid Middle East tensions and rising US inflation.
The blue-chip index ended the session up 27.48 points, or 0.3%, closing at 10,254.81, while the FTSE 250 gained 0.5% to finish at 22,951.34.
European markets failed to match London’s resilience, with Paris’s CAC 40 ending down 0.5% and Frankfurt’s DAX 40 closing 1.0% lower on the day.
Wall Street fared worse, with the Dow Jones Industrial Average down 1.0%, the S&P 500 0.7% lower, and the Nasdaq Composite falling 1.1% during the session.
US consumer inflation climbed to a fresh three-year high in May, with the consumer price index rising 4.2% year-on-year, up from April’s reading of 3.8%, according to the US Bureau of Labour Statistics.
Energy prices were a significant driver, rising 3.9% on the month, and the BLS noted that “the energy index accounted for over 60% of the monthly all items increase.”
Pooja Sriram at Barclays offered a measured assessment, saying “today’s print, which was roughly in line with forecasts by economists, the markets and likely the Fed, provides little reason to alter views on inflation.”
The Bank of Canada held its benchmark interest rate at 2.25%, saying that if energy prices stay high “we will not let their effects become broad-based persistent inflation.”
Geopolitical anxiety persisted following fresh US military action against Iran, after the downing of a US helicopter near the Strait of Hormuz heightened fears of further escalation.
David Morrison at Trade Nation described the situation as a “sudden and unwelcome escalation in US/Iranian hostilities,” coming just as tensions appeared to ease following a Lebanon agreement between Iran and Israel.
Qatari negotiators travelled to Tehran in an effort to bridge differences between the US and Iran, with a diplomat telling AFP: “Following consultations with the US, Qatari negotiators travelled to Tehran this morning to meet with the Iranians in an effort to bridge the remaining gaps.”
Brent crude for August delivery rose to 92.98 dollars a barrel, with Kathleen Brooks, research director at XTB, noting that declining onshore Middle Eastern oil inventories suggest “a significant amount” of oil is leaving the Gulf.
Brooks added that “this supply boost explains why the oil price is not surging on the latest outbreak of fighting in the Gulf,” offering some relief to energy-dependent markets.
The sharpest move in London came from WH Smith, which plunged 16% after raising £106 million from shareholders and lowering its profit guidance for the second time in just three months.
Trading at the travel retailer has been hit by the Middle East crisis, particularly across its North American operations, compounding difficulties that have plagued the business since last year.
The company was already under pressure after disclosing an overstatement of around £30 million of expected headline trading profit in North America last August, which led to the departure of chief executive Carl Cowling in November.
Dan Coatsworth, head of markets at AJ Bell, said the downturn in trading coming off the back of an accounting hiccup is “not the best conditions to go cap in hand to shareholders.”
Tritax Big Box REIT led the FTSE 100 gainers, rising 4.9% after the UK Secretary of State for Housing, Communities and Local Government approved its proposed data centre development near Heathrow Airport at Manor Farm.
Gold fell sharply to 4,129.15 dollars an ounce from 4,270.69 dollars on Tuesday, dragging down mining stocks including Endeavour Mining and Fresnillo, which fell 4.1% and 1.7% respectively.
Markets will next turn attention to Thursday’s European Central Bank interest rate decision, alongside US producer price index data and weekly jobless claims figures.