The FTSE 100 closed lower on Tuesday as gains in oil-linked stocks failed to offset weakness in the insurance sector and caution ahead of key US inflation figures.
The blue-chip index ended the session down 18.31 points, or 0.2%, closing at 10,844.19, while the FTSE 250 edged up 0.2% to 24,799.75.
Oil prices touched 90 dollars a barrel early in the session as uncertainty persisted over the Strait of Hormuz, a critical global shipping route caught in the US-Iran standoff.
Brent crude for October delivery climbed to 88.22 dollars a barrel on Tuesday afternoon, up from 86.35 dollars at the close on Monday.
One moment of relative optimism came from Pakistan’s defence minister, who suggested the US and Iran are “close to some sort of arrangement” over the disputed waterway.
“Things are shaping up in favour of peace,” Khawaja Asif told reporters in Islamabad on Tuesday, without giving details of any breakthrough.
The more upbeat tone followed US President Donald Trump hardening his stance on Monday, demanding Tehran pay reparations for deaths linked to the Islamic Republic and domestic protests.
Oil majors BP and Shell benefited from the price rally, with BP shares rising 2.2% and Shell climbing 1.8% to rank among the index’s top performers.
Investor focus is now turning to Wednesday’s US inflation data, which follows Friday’s soft jobs report and could further reduce fears of a Federal Reserve rate hike.
Bank of America analysts Alex Cohen, Stephen Juneau and Meghan Swiber said: “We expect US rates and the USD to react more to a downside print than to an equally sized upside print.”
The BofA team forecast headline CPI rose by a “modest” 0.1% on-month and 3.4% on-year in July, with core CPI expected to rise 0.20% on-month and 2.5% on-year.
David Morrison, senior market analyst at Trade Nation, noted the probability of at least one 25-basis-point rate hike from the Federal Reserve before year-end remains extremely high at around 80%.
Morrison warned: “Investors are calculating that the Fed is far more worried about oil-led inflation than it is about underlying weakness in the economy which is showing up in a rapidly deteriorating labour market.”
The insurance sector was the session’s most notable drag, with Legal & General (LGEN.L) falling 3.1% and M&G (MNG.L) dropping 3.3% after UBS cut both stocks to “sell”.
Goldman Sachs also cut Legal & General to “sell”, compounding the negative sentiment around the insurer on a bruising day for the sector.
UBS analyst Nasib Ahmed said Legal & General’s recent share price strength potentially leads to “greater scrutiny on growing risk”, citing falling solvency ratios and high sensitivity to credit events.
At M&G, Ahmed flagged that the around 6% 2028 forecast yield was no longer attractive on a relative basis, and raised concerns about distributable earnings headwinds within its insurance business.
Despite UBS expressing a preference for both Standard Life and Aviva, shares in those two companies also retreated, falling 3.3% and 1.4% respectively.
Spirax (SPX.L) led the blue-chip fallers, shedding 5.6% after an unchanged outlook disappointed investors hoping for an upgrade to earnings guidance, according to AJ Bell analyst Dan Coatsworth.
Gold continued its strong run, trading at 4,376.20 dollars an ounce on Tuesday, up from 4,350.91 dollars on Monday, as investors sought safe-haven assets amid ongoing geopolitical tension.