London stocks surrendered early momentum on Wednesday as renewed geopolitical strain in the Gulf offset overnight hopes for a temporary easing of Strait of Hormuz pressures. At 07:18 ET (11:18 GMT) the FTSE 100 had cut its earlier advance and was trading 0.34% lower. Germany's DAX was unchanged and France's CAC 40 ticked up 0.03%.
Sterling held a small gain, trading at $1.3477, up 0.20% on the day.
Geopolitics and immediate market response
Houthi military spokesperson Yahya Saree said the group struck the Saudi oil tanker Wafa with ballistic missiles off Yanbu in the northern Red Sea, the eighth Saudi vessel targeted since the maritime blockade began on July 22, according to AFP. Saree also warned that attacks in the northern Red Sea would intensify after Riyadh diverted tankers there to avoid the blockade in the south.
Separately, Iran's state broadcaster, citing an informed source, reported that any Iran-Oman agreement on Hormuz navigation would not automatically lead to the strait's reopening. The broadcaster said the strait would remain closed as long as what Tehran describes as "U.S. violations" continue, adding that talks are being held exclusively between Tehran and Muscat and "have nothing to do with the United States."
Those comments undercut earlier reports that had briefly lifted sentiment. Axios, citing a U.S. official and a regional source, had reported that Iran had completed its internal approval process for a 60-day interim arrangement. Under that draft framework, inbound Gulf traffic would use a northern lane through Iranian waters and outbound traffic a southern lane through Omani waters, with mines cleared within 30 days.
Political remarks
The situation has also featured public comments from U.S. leadership. U.S. President Trump had told Fox News the strait would reopen "very soon," and warned Iran would be "hit really hard" if it backed out.
Economic data and market Movers
On the macro front, the S&P Global UK Services PMI rose to 52.1 in July from 48.8 in June, marking the first above-50 reading in three months, although it remains below the long-run average of 54.2. The Composite PMI climbed to 52.2. Employment, however, fell for the twenty-second consecutive month, equalling a 30-year record set during the global financial crisis.
Commodities reacted to the escalation. Brent crude rose 1.3% to $80.42 a barrel and WTI added 0.45% to $76.13. Gold futures increased 1.9% to $4,231 and spot gold gained 2.3% to $4,171.89.
UK corporate round-up
- Hiscox raised its retail growth forecast after first-half premiums climbed 10.1%.
- Beazley reported its first-half profit halved amid higher claims and a softer market.
- Glencore's first-half earnings rose on strong trading and the company reiterated plans for an Australia listing.
- Next raised its annual profit outlook following stronger-than-expected quarterly sales.
Summary and outlook
Markets briefly cheered reports of a potential interim navigation deal for the Strait of Hormuz, but fresh militant action against shipping and Iran's insistence the strait will remain closed while it perceives U.S. violations quickly tempered that optimism. The result was a modest decline in the FTSE 100 alongside gains in oil and precious metals as investors weighed heightened regional risk. On the domestic data front, services activity showed improvement while employment metrics continued to signal weakness.
Key points
- Geopolitical developments: A Houthi ballistic-missile strike on the Saudi tanker Wafa and Iran's comments on Hormuz curtailed earlier market gains - impacting energy and shipping-related sectors.
- Market moves: The FTSE 100 traded 0.34% lower after paring earlier advances; oil and gold prices rose as risk sentiment increased.
- Economic data: S&P Global UK Services PMI improved to 52.1 while employment fell for a twenty-second month, a factor relevant to domestic consumer-facing sectors and labor-sensitive industries.
Risks and uncertainties
- Escalation in maritime attacks: Continued strikes on commercial shipping could further pressure energy markets and shipping insurers.
- Diplomatic ambiguity: Iran's statement that Hormuz would remain closed while it cites "U.S. violations" leaves the status of navigation uncertain and could sustain volatility in oil and shipping sectors.
- Labor market weakness: Persistent declines in employment may dampen economic momentum in consumer and services sectors despite an uptick in PMI readings.