London close: FTSE 100 sinks to four-week low as risk-off trade takes hold

London's top-tier stock market closed at its lowest levels in four weeks on Tuesday as risk-off trading took over in light of escalating tensions in the Middle East and concerns that monetary loosening in the UK and US may not happen as quickly as hoped.

The FTSE 100 finished the session down 1.8% at 7,820.36 – a level not seen since 20 March – with just three stocks finishing in positive territory. Financials and mining stocks were bearing the brunt of the sell-off as investors ditched 'riskier' assets for defensive plays like utilities.

“It has been another tough day for global markets, and limited gains in the US are disappearing as traders continue to derisk thanks to the ongoing uncertainty in the Middle East," said Chris Beauchamp, chief market analyst at IG. "The threat of an Israeli response to Iran’s attacks on Saturday, and yesterday’s strong US retail sales data, remain the drivers of the declines.”

Tensions in the Middle East were high after Israel said it had no choice but to respond to Iran's 300-plus missiles and drones that were launched at the weekend. The initial muted reaction to Tehran's attack had a similarly subdued impact on the markets on Monday, though fears are now rising of a reprisal. "Missiles into the territory of the State of Israel will be met with a response," said Herzi Halevi, chief of staff of the IDF.

Meanwhile, markets were reacting yet more strong economic data from the US on Monday, with retail sales rising more than expected in March, prompting some to push back their projections for interest-rate cuts even further in light of a resilient economy. Wall Street stocks were struggling to rebound significantly on Tuesday after heavy losses on Monday with 10-year US Treasury yields rising back to levels not seen since November 2023 at around the 4.65% mark.

Data comes in mixed

Asian markets dropped sharply overnight, with the Nikkei 225 and Hang Seng both dropping 2% each, after economic data from China underwhelmed. GDP figures for the first quarter beat expectations, with annual growth rising to 5.3% from 5.2%, but standalone data for March showed that growth had started to tail off by the end of the quarter.

Chinese retail sales rose by just 3.1% year-on-year in March after 5.5% growth in February, while industrial production growth slowed to 4.5% from 7.0% – with both figures missing economists' expectations.

Back on home soil, the UK unemployment rate jumped to 4.2% in the three months to February, from an upwardly revised 4.0% in the three months to January, ahead of the 4.0% forecast by the market.

However, UK pay growth was resilient, showing the average earnings growth rate (excluding bonuses) remaining high at 6.0% in February, down just 10 basis points over the month after a particularly strong January. Strong salary data has triggered concerns that the Bank of England may wait longer than anticipated to start cutting interest rates given the upwards pressure wage hikes put on inflation.

"Given the BOE’s guidance that companies avoid offering wage hikes, in a bid to keep inflation down, the data data will no doubt be causing some uncertainty for the bank," said analyst James Harte of Tickmill Group.

Meanwhile, the ZEW economic sentiment survey for the eurozone improved to 43.9 in April from 33.5 in March, surpassing the 37.2 mark expected by economists, helped by German confidence reaching a two-year high.

Market movers

Just three stocks on the FTSE 100 finished the day with gains – Croda International, Centrica and Smith & Nephew – with investors favouring defensive sectors like chemicals, healthcare and utilities.

Heading the other way were financial and mining stocks, such as Phoenix Group, Standard Chartered, Anglo American, Glencore and Rio Tinto.

DS Smith fell 4% after announcing that US rival International Paper has agreed to buy the company in a £7.8bn all-share deal. The deal dwarfs an earlier offer from UK peer Mondi, which had agreed an all-share takeover worth around £6.2bn in March, shortly before International Paper launched its own approach.

On the FTSE 250, shares in Dr Martens plummeted 29% after the bootmaker announced chief executive Kenny Wilson has decided to step down as it issued another profit warning for the current financial year amid continuing woes in the US, its biggest market. The company warned "we could see a worst-case scenario of profit-before-tax of around one-third of the 2024 level".

QinetiQ Group fell 6% after announcing Carol Borg's departure as group chief financial officer, effective immediately, with Martin Cooper appointed as her successor, expected to join by October.

Market Movers

FTSE 100 (UKX) 7,820.36 -1.82%
FTSE 250 (MCX) 19,344.54 -1.80%
techMARK (TASX) 4,395.79 -1.54%

FTSE 100 - Risers

Croda International (CRDA) 4,830.00p 1.28%
Smith & Nephew (SN.) 962.00p 0.35%
Centrica (CNA) 130.95p 0.34%

FTSE 100 - Fallers

Ocado Group (OCDO) 342.90p -5.77%
Phoenix Group Holdings (PHNX) 484.80p -4.66%
Standard Chartered (STAN) 635.20p -4.45%
Smith (DS) (SMDS) 393.40p -3.96%
Intermediate Capital Group (ICG) 2,040.00p -3.86%
Beazley (BEZ) 647.50p -3.86%
Anglo American (AAL) 2,086.50p -3.80%
Scottish Mortgage Inv Trust (SMT) 834.60p -3.65%
IMI (IMI) 1,736.00p -3.56%
St James's Place (STJ) 402.00p -3.18%

FTSE 250 - Risers

Plus500 Ltd (DI) (PLUS) 2,026.00p 2.37%
Wood Group (John) (WG.) 143.60p 2.28%
IntegraFin Holding (IHP) 292.00p 1.74%
Centamin (DI) (CEY) 128.20p 1.50%
Harbour Energy (HBR) 295.20p 0.89%
Bluefield Solar Income Fund Limited (BSIF) 99.00p 0.71%
Savills (SVS) 1,032.00p 0.58%
NextEnergy Solar Fund Limited Red (NESF) 71.85p 0.35%
SDCL Energy Efficiency Income Trust (SEIT) 57.70p 0.35%
Octopus Renewables Infrastructure Trust (ORIT) 69.20p 0.29%

FTSE 250 - Fallers

Dr. Martens (DOCS) 67.00p -29.44%
Auction Technology Group (ATG) 529.00p -15.09%
Ferrexpo (FXPO) 44.15p -6.66%
TUI AG Reg Shs (DI) (TUI) 575.00p -6.35%
QinetiQ Group (QQ.) 335.80p -6.15%
Watches of Switzerland Group (WOSG) 337.80p -5.80%
International Distributions Services (IDS) 214.20p -5.72%
Hays (HAS) 87.85p -5.03%
Foresight Group Holdings Limited NPV (FSG) 447.00p -4.89%
Future (FUTR) 651.00p -4.82%