The FTSE 100 closed lower on Wednesday, dragged down by declines in pharmaceutical giants GSK and AstraZeneca, while oil prices surged amid reports that the United States is considering a prolonged blockade of the Strait of Hormuz.
London's blue-chip index ended the session down 119.68 points, or 1.2%, at 10,213.11. The FTSE 250 also fell, closing 198.55 points lower, or 0.9%, at 22,200.87. However, the AIM All-Share index bucked the trend, rising 1.53 points, or 0.2%, to 788.43.
Oil Surges on Middle East Tensions
Oil prices rose sharply after a White House official indicated that US President Donald Trump was prepared to maintain a naval blockade of Iran for months if necessary, as the crisis in the Middle East showed no signs of abating. According to AFP, oil executives were told in a meeting with Trump on Tuesday that the US could extend its blockade of Iranian ports beyond initial expectations.
US press reports have suggested that Trump has already decided to reject Iran's latest proposal to reopen the Strait of Hormuz. The Wall Street Journal reported that he intends to continue the blockade until Tehran agrees to dismantle its nuclear programme.
The latest Iranian proposal, relayed via Pakistan, outlined red lines on nuclear issues and the Strait of Hormuz, according to Iran's Fars news agency. The plan would reportedly see Tehran ease its chokehold on the strait in exchange for Washington lifting its retaliatory blockade, while broader negotiations continue over the nuclear programme.
Brent crude oil traded at $117.20 per barrel on Wednesday afternoon, sharply higher compared to $111.77 at the time of the London equities close on Tuesday.
Joshua Mahony, chief market analyst at Scope Markets, commented: "The perception that Iran will come to the table as the blockade threatens to shut in and damage their energy infrastructure means the world finds itself stuck in a game of chicken to see who blinks first."
European and US Markets
In European equities, the CAC 40 in Paris ended down 0.4%, while the DAX 40 in Frankfurt fell 0.3%. In New York, markets were also lower, with the Dow Jones Industrial Average down 0.6%, the S&P 500 0.1% lower, and the Nasdaq Composite slightly in the red.
The yield on the US 10-year Treasury rose to 4.39% from 4.36% on Tuesday, while the yield on the 30-year Treasury edged up to 4.98% from 4.96%.
The US Federal Reserve is widely expected to leave interest rates unchanged later on Wednesday, in what could be chairman Jerome Powell's final meeting. His term expires on May 15, and the US Senate panel voted to advance the nomination of Kevin Warsh, Trump's pick to succeed him.
David Morrison, senior market analyst at Trade Nation, said: "Markets are not expecting any change in interest rates tonight but will be paying close attention to the Fed's statement, and how it may differ from the previous update, as well as Jerome Powell's final press conference as chair. The key issue here is hearing the Fed's view on the war, as it relates to high oil prices, and thereby their outlook for inflation for the rest of the year."
Elsewhere, attention will focus on earnings reports from four of the Magnificent Seven tech stocks: Microsoft, Meta Platforms, Alphabet, and Amazon, all delivering results for the March quarter. Together, these four companies represent around 15% of the S&P 500's market value.
Currency and Commodity Markets
The pound eased to $1.3491 on Wednesday afternoon from $1.3505 on Tuesday. Against the euro, sterling dipped to €1.1530 from €1.1534.
In London, GSK fell 6.3% and AstraZeneca dipped 1.5%, despite both reporting solid first-quarter results and retaining their full-year guidance. Dan Coatsworth, head of markets at AJ Bell, noted: "It might be that full-year earnings guidance was only reiterated rather than upgraded in both cases, leaving investors feeling short-changed against a solid start to the year."
Housebuilders also came under pressure, as rising oil prices stoked fears that interest rates may need to increase to combat inflationary pressures. Persimmon fell 4.4%, Berkeley Group dropped 3.6%, and Barratt Redrow declined 3.0%. Kitchen supplier Howden Joinery was down 3.8%, while retailer Next fell 3.0% on concerns about a knock-on effect on retail sales.
Top Movers
DCC led the risers on the FTSE 100, climbing 9.3%, after confirming it had received an indicative cash proposal from US investment firms Energy Capital Partners and Kohlberg Kravis Roberts. The Dublin-based energy services company said it is evaluating the approach together with its advisers.
On the FTSE 250, Ceres Power surged 25% after Goldman Sachs raised its share price target to 670p from 530p and reiterated a 'buy' rating. The investment bank upgraded its manufacturing capacity assumptions for the fuel cell technology company following faster-than-expected solid oxide fuel cell ramp-up signals from strategic partner Weichai and improving medium-term royalty visibility.
The biggest risers on the FTSE 100 were DCC, up 500.0p at 5,880.0p; Intertek, up 171.0p at 4,766.0p; Mondi, up 19.2p at 756.0p; Rightmove, up 5.1p at 439.3p; and Barclays, up 4.45p at 431.0p.
The biggest fallers on the FTSE 100 were St James's Place, down 75.0p at 1,177.5p; GSK, down 110.0p at 1,918.0p; Persimmon, down 47.0p at 1,027.0p; Fresnillo, down 128.0p at 3,112.0p; and Howden Joinery, down 30.5p at 768.5p.
