London close: Stocks pull back as Red Sea tensions rise

UK stocks finished in the red but off their daily lows as markets pulled back from a seven-month high amid mixed economic data and rising geopolitical tensions in the Middle East.

After opening in positive territory, the FTSE 100 finished the session at 7,721.52, down just 0.15% on last Friday's close of 7,733.24, its highest close since 23 May 2023.

"After an initial promising start to the day, stock indices mainly dropped into the red on heightened geopolitical tensions in the Middle East," said Axel Rudolph, senior market analyst at IG.

News that an Iranian warship entered the Red Sea was causing concern for investors, given it is a channel that handles around one eighth of global commerce, as nations continue to take action against Yemen's Houthi rebels who have attacked ships bound for Israel.

Danish shipping giant Maersk on Tuesday joined a host of other transport companies to suspend all shipping through the Red Sea and Gulf of Aden until further notice after one of its vessels came under attack from Houthi militants over the weekend.

Oil prices were initially up over 2% early on but the rally had petered out by the close, with Brent crude down 0.9% at $76.36 a a barrel by 1704 in London, while gold finished just 0.2% higher at $2,075.40 an ounce, well below its intraday high.

"Heightened tensions in the Red Sea – where US military intervention over the weekend prevented a Houthi attack on a container ship – and Iran sending a destroyer to the region provoked an initial 2% rise in the oil price and flight-to-safety flows into gold before both advances turned into nothing as investors turned their attention to money markets and yields instead."

A mixed start on Wall Street did little to help sentiment in London, with Apple dragging the Nasdaq lower after being hit by a broker downgrade by Barclays, as investors turned cautious ahead of Wednesday's FOMC minutes and Friday's all-important US jobs report.

Meanwhile, Tuesday saw a barrage of weak manufacturing purchasing managers' indices (PMIs) from across the globe. Data from the eurozone, US and UK all showed a contraction in industrial activity in December.

Meanwhile, two closely watched surveys covering China's manufacturing sector showed conflicting results, with official government figures pointing to a continued decline and a Caixin Global report indicating a pick-up in growth.

Economic data hits stocks

Leading the fallers on the FTSE 100 were stocks heavily exposed to China, such as insurance group Prudential, banking giant HSBC and luxury group Burberry, along with miners Antofagasta, Anglo American and Fresnillo.

Diversified Energy Company was higher after completing the sale of producing assets in Appalachia to a special purpose vehicle, DP Lion Equity Holdco, while retaining a 20% minority interest and operational control. The transaction generated around $200m in proceeds, allowing the company to reduce its debt by 12%.

Market Movers

FTSE 100 (UKX) 7,721.52 -0.15%
FTSE 250 (MCX) 19,511.80 -0.90%
techMARK (TASX) 4,285.88 -0.20%

FTSE 100 - Risers

GSK (GSK) 1,479.80p 2.04%
AstraZeneca (AZN) 10,788.00p 1.77%
Vodafone Group (VOD) 69.76p 1.75%
British American Tobacco (BATS) 2,331.50p 1.57%
Marks & Spencer Group (MKS) 276.00p 1.32%
BT Group (BT.A) 125.10p 1.21%
BP (BP.) 471.00p 1.04%
Barclays (BARC) 155.28p 0.98%
Rio Tinto (RIO) 5,891.00p 0.84%
M&G (MNG) 224.20p 0.81%

FTSE 100 - Fallers

Fresnillo (FRES) 571.00p -3.94%
Diploma (DPLM) 3,450.00p -3.69%
St James's Place (STJ) 658.80p -3.63%
Prudential (PRU) 856.20p -3.49%
JD Sports Fashion (JD.) 160.60p -3.22%
Rightmove (RMV) 557.20p -3.20%
3i Group (III) 2,344.00p -3.18%
Spirax-Sarco Engineering (SPX) 10,215.00p -2.76%
Frasers Group (FRAS) 886.00p -2.69%
Halma (HLMA) 2,224.00p -2.63%

FTSE 250 - Risers

Diversified Energy Company (DEC) 1,198.50p 7.49%
Babcock International Group (BAB) 420.00p 6.33%
Bakkavor Group (BAKK) 83.80p 3.46%
Hipgnosis Songs Fund Limited NPV (SONG) 73.80p 2.50%
Harbour Energy (HBR) 316.10p 2.43%
Baltic Classifieds Group (BCG) 242.00p 2.33%
Indivior (INDV) 1,208.00p 1.94%
Balfour Beatty (BBY) 337.40p 1.87%
TUI AG Reg Shs (DI) (TUI) 623.50p 1.71%
Direct Line Insurance Group (DLG) 184.95p 1.65%

FTSE 250 - Fallers

Trustpilot Group (TRST) 138.80p -6.53%
Darktrace (DARK) 343.10p -6.44%
IWG (IWG) 178.20p -5.86%
AO World (AO.) 93.00p -5.44%
AJ Bell (AJB) 298.40p -4.66%
Watches of Switzerland Group (WOSG) 676.00p -4.59%
Aston Martin Lagonda Global Holdings (AML) 215.40p -4.52%
C&C Group (CDI) (CCR) 146.40p -4.06%
Coats Group (COA) 74.30p -4.01%
FDM Group (Holdings) (FDM) 440.50p -3.93%