London pre-open: Sharp falls expected after Israel retaliates

UK stocks are expected to drop sharply on Friday morning after a flare-up of tensions in the Middle East.

The FTSE 100 was being called to open around 60 points lower than Thursday's close 7,877.05 – a drop of 0.8%.

Israel struck a target in the central Iranian province of Isfahan, where the country's nuclear installations are located, it was reported overnight. The retaliatory strike followed an Iranian attack with over 300 drones and missiles last weekend, though they caused only minor damage after 99% of the drones and missiles were downed mid-flight.

Israel's attack pushed up gold prices to above $2,400 an ounce and Brent crude over $90 a barrel, though both had pulled back slightly as investors digested newsflow and reports of minimal damage. However, the situation is still very unclear.

"We will likely see a further flight to safety before the weekly closing bell on fear of further escalation of tensions during the weekend. Shorting oil and gold is risky as Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Also weighing on sentiment early on were comments from New York Federal Reserve president John Williams overnight, who warned that monetary policy tightening might be necessary in light of resilient economic data. "If the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that," he said.

In other news, German industrial producer prices fell 2.9% in March year on year, driven by lower energy prices, the federal statistics agency said on Friday. Prices rose by 0.2% compared with February, it added. Energy prices in March were down 7% annually and unchanged versus February 2024.

Meanwhile, UK retail sales were flat in March, undershooting expectations, according to figures released on Friday by the Office for National Statistics. Retail sales were unchanged on the month following a revised 0.1% jump in February and versus expectations for a 0.3% increase.

Corporate news was thin on the ground in London, with no major blue chips reporting results or trading updates.