British stocks retreated on Friday as a near-paralysed Strait of Hormuz and escalating tensions involving Iran dragged on European markets.
The FTSE 100 (^FTSE) fell 0.31% as of 07:15 GMT, while Germany’s DAX (^GDAXI) dropped 0.44% and France’s CAC 40 lost 0.38%.
Sterling edged 0.07% higher against the dollar to 1.3367, finding some support from stronger-than-expected domestic retail data.
President Trump intensified market anxiety after speaking to Axios on Thursday, raising the prospect of direct military action against Iran.
“Do I want to go in and annihilate them, or do I not?” Trump said. “It’s a big decision. Anything could happen with me.”
In a separate interview with ABC 11, Trump said Tehran was “not ready” for a deal, adding: “We’re gonna either make a deal that’s good, or we’re not gonna make a deal at all.”
Iran’s Revolutionary Guard Corps struck a Togo-flagged tanker attempting to pass through the Strait of Hormuz, further disrupting one of the world’s most critical shipping lanes.
Preliminary data showed only four cargo ships transited the strait on Thursday, sharply below the 10-day average of approximately 16 vessels and down from six the previous day.
A senior UN official, Rania al-Mashat of the UN Economic and Social Commission for Western Asia, told an informal Security Council meeting the conflict had cost Arab economies around $150 billion in its first month, equivalent to roughly 4% of regional gross domestic product.
Italy announced it would deploy warships to the Bab al-Mandeb strait without waiting for a joint EU decision, signalling growing pressure on European governments to act independently.
Oil prices slipped further in early trade after reports emerged that Saudi Arabia could restore some capacity on its Houthi-damaged East-West pipeline within days, easing some supply concerns.
The pipeline had been Riyadh’s primary route for bypassing the Hormuz blockade, with Saudi Arabia having since shifted to ship-to-ship transfers off the coast of Oman.
China has also reportedly asked Iran to rein in Houthi activity, adding another diplomatic dimension to the already complex regional standoff.
Britain’s retail sales volumes rose 0.5% in August, well above the consensus forecast of a 0.2% decline and reversing a 0.5% fall recorded in July, the Office for National Statistics said.
The Bank of England on Thursday held interest rates steady and overhauled its quantitative tightening framework, pausing all gilt sales until April 2027 and removing bonds maturing after 2049, around £120 billion, from active sales.
The Bank of Japan raised its benchmark rate by 25 basis points overnight in a 7-2 vote, with the two dissenting votes interpreted by analysts as a dovish signal for future policy direction.
Mohit Kumar, chief economist at Jefferies, said: “For now, we are constructive. Improving geopolitical tensions should help both the rates and the equities markets. Hence, yesterday we initiated a long position in 5Y rates.”
Kumar added: “We continue to have a bullish bias on equities and credit. Our view remains that central banks are not going to deliver on the forwards, and we would be looking at potentially one hike from the Fed and ECB.”
Brent crude fell 2.1% to $102.62 a barrel, while WTI dropped 1.8% to $100.10 as oil markets digested the mixed signals around supply disruption and diplomatic progress.
Gold futures rose 0.72% to $4,431.25 while spot gold gained 1.14% to $4,390.68, with haven demand remaining firm amid the ongoing Middle East conflict.