The FTSE 100 index closed little changed on Tuesday, as investors sought to stabilise their portfolios following significant losses in the previous trading session.
This cautious approach among investors follows a period of heightened volatility and uncertainty in the markets.
In Asia, stock markets faced substantial declines, with trading on the KOSPI being temporarily suspended after steep drops prompted the implementation of volatility controls.
These measures are designed to prevent excessive fluctuations, reflecting the prevailing market instability and investor apprehension.
In contrast, the precious metals market continued to rise, with gold prices reaching new highs as investors turned to safe-haven assets amid market turbulence. Silver also gained, reflecting a broader trend of rising demand for these metals as a hedge against uncertainty.
The VIX index, often referred to as Wall Street’s “fear gauge,” rose by 23%, indicating a sharp uptick in investor anxiety and concerns about market stability. A higher VIX suggests that investors anticipate potential volatility and seek protection against market downturns.
Energy markets remained under significant pressure during this period. Wholesale gas prices increased amid growing concerns about supply shortages, while Brent crude oil prices surged, surpassing the $84 per barrel mark. These rising energy costs could pose challenges for policymakers, as sustained increases in energy prices are likely to push inflation rates higher, thereby reducing the scope for interest rate cuts in the near future.
Central banks around the world are closely monitoring fluctuations in commodity markets, particularly in the energy sector. A prolonged spike in oil and gas prices could delay monetary easing cycles in major economies, especially in countries that rely heavily on energy imports. Policymakers are likely weighing the implications of these trends as they formulate strategies to navigate the evolving economic landscape.
Susannah Streeter, chief investment strategist, Wealth Club said: “Sentiment remains highly wary on financial markets as investors assess the latest developments in the Middle East and brace for fresh turbulence.
London’s Footsie made a small recovery in early trade following yesterday’s losses, but sentiment remains highly cautious, with initial gains evaporating. Investors are nursing yesterday’s losses and trying to work out just how long the conflict may last. Indices in Asia racked up steep losses, with the Nikkei ending 3.6% lower and South Korea’s Kospi seeing trading suspended at one point as shares dived into freefall mode. The index ended 12% lower as investors fretted about the impact of high energy prices, given how reliant the country is on imports.
A fresh retreat into safe havens has pushed up gold and silver prices as the geopolitical situation remains highly unpredictable and investors strap in for another jolt of volatility.
The VIX index, known as the fear gauge, shot up sharply, jumping 23% to around 27 before falling back to end around 10% higher. The index was developed by the Chicago Board Options Exchange to help assess investor sentiment and expected volatility over the next 30 days. The gauge is still well below the level it reached last April during the Liberation Day tariff chaos.
President Trump’s promise to pay for insurance and a military guard for oil and gas tankers attempting to traverse the dangerous Strait of Hormuz has provided a balm of sorts. It’s helping keep a lid on oil prices, but nevertheless Brent Crude, the benchmark, has still risen again, heading above $84 a barrel. Big shipping companies will still be hesitant to use the channel following threats from Iran to destroy vessels, even with a US naval escort.
UK gas prices have continued to rise as supply concerns swirl amid intense disruption through the Strait of Hormuz. It’s not yet known how long crucial facilities in Qatar will be knocked out for, which the EU relies on for around 12%-15% of imports. UK gas hit 143 pence per therm earlier, trading at the highest level in three years. It’s still unclear exactly how this will impact consumers, as much will depend on how long the conflict lasts. If higher prices are sustained, it’s likely to push up the overall rate of inflation and could see only one interest rate cut this year from the Bank of England. The Fed may also decide to hold off on a rate cut until September.
Current high gas prices could also affect the UK energy price cap for household bills in July, but even if the conflict is protracted and it edges up, it may not have a serious effect on budgets given that there’s less heating demand during the summer months. All eyes are on the duration of this conflict, and the worry is that as more countries are drawn in, it will become more complex to find a long-term solution and bring an end to the violence.”
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