The FTSE 100 opened little changed on Monday as investors weighed renewed conflict in the Middle East, a sharp retreat in semiconductor stocks and the start of the second-quarter earnings season on Wall Street.
London’s benchmark index traded near the flatline in early dealings, with energy producers supported by firmer oil prices while airlines and travel stocks came under pressure after the collapse of the ceasefire between the US and Iran reignited concerns about fuel costs and disruption to international travel.
Brent crude remained close to $79 a barrel, extending gains from last week as traders reassessed the risk of further supply disruption in the Gulf. The renewed rise in energy prices is likely to complicate the inflation outlook for both the Federal Reserve and the Bank of England, particularly after recent signs that price pressures had been easing.
Strategists said the move in oil was less about an immediate loss of supply than about a higher geopolitical risk premium being built into markets.
“The market had begun to price in a period of de-escalation,” said one London-based energy strategist. “The breakdown of the ceasefire means investors must once again consider the possibility of prolonged disruption across the region.”
Airlines were among the weakest performers in London after Heathrow Airport reported a decline in passenger numbers for June, adding to concerns about softer consumer demand and rising fuel costs.
Investors sold travel-related shares across Europe, with analysts warning that sustained oil prices near $80 a barrel could put pressure on airline margins during the peak summer season.
The latest turn in the global artificial intelligence trade came from Asia, where semiconductor shares suffered a sharp correction. SK Hynix fell 15 per cent, triggering a circuit breaker on the KOSPI and leading losses across the sector.
The sell-off spread to European chipmakers and technology suppliers, reflecting growing concern that valuations had run ahead of near-term earnings prospects despite continued demand for AI-related hardware.
Portfolio managers said the move highlighted the increasingly volatile nature of the AI trade, which has swung repeatedly between optimism over data-centre investment and fears that expectations have become too stretched.
Attention now turns to the US banking sector, where second-quarter results from major lenders are expected to provide an early test of market sentiment.
Investors will be looking for evidence that stronger trading revenues, a revival in initial public offerings and an increase in merger activity have helped offset pressure on net interest margins.
Analysts expect the largest banks to report resilient profits, although guidance on loan demand and consumer credit quality may prove more important for the broader market outlook.
Kevin Warsh is scheduled to make his first appearance before Congress as Federal Reserve chair this week, while the latest US inflation figures will shape expectations for the path of interest rates through the second half of the year.
Money markets continue to price in gradual easing, but a renewed rise in energy prices could complicate the case for rapid rate cuts if it feeds into headline inflation.
In the UK, investors will watch monthly GDP figures and the annual Mansion House speeches for fresh signals on growth, fiscal policy and the Bank of England’s rate outlook.
Economists expect the data to show a modest expansion in activity, although business surveys continue to point to uneven momentum across the economy.
The Mansion House address from Chancellor Rachel Reeves is also likely to attract attention for any further measures aimed at boosting investment and improving the competitiveness of London’s capital markets.
One brighter spot for domestic shares could come from the consumer sector after England women’s national football team’s victory over Norway, which retailers, pubs and hospitality groups hope will support spending on celebrations during the week.
While the immediate market reaction was muted, analysts noted that major sporting events have historically provided a short-term boost to food, drink and leisure businesses across the UK.
For now, investors appear reluctant to take large directional positions. The combination of renewed Middle East tensions, a volatile AI sector and a critical week of earnings and inflation data has left the FTSE 100 caught between support from higher energy prices and concern about the impact on global growth.
With Brent holding near $79 a barrel and central banks still focused on inflation, traders expect markets to remain highly sensitive to any further escalation in the Gulf or surprises in US and UK economic data.
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