The FTSE 100 plunged on Friday as talks between the US and China failed to make expected progress in the Middle East, adding to jitters caused by domestic political uncertainty.
“There's a pessimistic feeling at the end of the week as big problems pile up, with no solutions in sight,” said Susannah Streeter, chief investment strategist at Wealth Club.
The FTSE 100 closed down 177.56 points, or 1.7%, at 10,195.37.
The FTSE 250 closed down 231.93 points, or 1.0%, at 22,596.14, and the AIM All-Share fell 8.23 points, or 1.0%, to 808.89.
For the week, the FTSE 100 fell 0.4%, the FTSE 250 lost 1.1% and the AIM All-Share lost 0.6%.
Investors were disappointed that long-awaited talks between US President Donald Trump and Chinese leader Xi Jinping failed to make any major progress on war or trade relations in the Middle East.
“The meeting… was full of warm words and symbolism, but not results,” Ms Streeter said.
“With diplomatic efforts aimed at resolving the Middle East conflict in limbo, new uncertainty has set in,” he added.
The White House said leaders had “agreed that the Strait of Hormuz must remain open to support the free flow of energy.”
But investors had hoped for more progress toward reopening the crucial strait, where oil tanker traffic has nearly ground to a halt since the outbreak of war, sending energy prices soaring.
The lack of progress drove up oil prices once again.
Brent crude oil for delivery in July was trading at $108.83 a barrel on Friday, compared to $104.92 on Thursday at the close of the London Stock Exchange.
In Europe on Friday, the CAC 40 in Paris closed down 1.6% and the DAX 40 in Frankfurt fell 2.1%.
In New York, the Dow Jones Industrial Average fell 0.9%, the S&P 500 fell 1.0% and the Nasdaq Composite fell 1.2%.
In London, sentiment was further dented by another wave of concern over political instability, as Greater Manchester Mayor Andy Burnham pledged to fight a return to Westminster, where he is likely to launch a leadership challenge to Prime Minister Sir Keir Starmer.
“Burnham's big hurdle, of course, is winning the by-election, so this leadership race looks set to be long and cumbersome. Another episode of political infighting, with another change of Prime Minister underway, is not a good look for a country that needs to show stability to attract investment,” Ms Streeter said.
The double whammy of uncertainty in the Middle East and Westminster saw the UK government's borrowing costs soar and the pound plunge.
The 10-year bond yield was trading at 5.17%, up from 5.00% at the same time the previous day.
ING said the biggest risk here is that investors begin to question the UK's long-term fiscal discipline.
“Gold markets are reliant on foreign investors and any sign that fiscal dynamics risk becoming unsustainable could quickly change sentiment,” ING explained.
“Until we better understand the fiscal path forward, the political risk premium is likely to continue to rise. An increase towards 5.30% is quite possible in the short term,” ING added.
The pound fell against the dollar to $1.3319 on Friday afternoon from $1.3480 on Thursday. Against the euro, sterling fell to 1.1462 euros from 1.1549 euros on Thursday.
The euro traded lower against the dollar, standing at $1.1622 on Friday, compared to $1.1677 on Thursday. Against the yen, the dollar was trading at 158.68 yen, up from 158.14 yen.
The 10-year US Treasury yield widened to 4.58% on Friday from 4.46% on Thursday. The 30-year US Treasury yield stretched to 5.12% from 5.01%.
On a quiet day for company news, reports of potential deals boosted price moves for Hiscox and Magnum Ice Cream.
Bermuda-based insurance provider Hiscox topped the FTSE 100, up 12%, while Insurance Post reported Canada's Intact Financial Corp was exploring a possible bid.
Citing multiple sources, Insurance Post said Intact is exploring a possible bid for Hiscox as it tries to develop its commercial lines business.
Meanwhile, Magnum Ice Cream rose 9.4% as Reuters named Blackstone and Clayton, Dubilier & Rice among several private equity firms in the early stages of exploring bids for the owner of Cornetto and Ben & Jerry's, which was spun off from Unilever less than six months ago.
But JPMorgan analysts believe a deal won't be simple and say tax considerations may limit the potential for a Magnum acquisition in the near term.
In a research note, published after the Reuters report, JPM explained that because the Magnum spinoff was a tax-free spin-off, the company agreed to refrain from actions that could create a tax liability, including being restricted for two years from engaging in “certain acquisition, merger, liquidation, sale and redemption transactions of shares.”
Additionally, Magnum agreed to indemnify Unilever for any taxes or losses if the spin-off does not qualify as tax-free.
Therefore, JPM said it considers the likelihood of an acquisition “remote” given these limitations.
Among the top-line losers, miners sank amid plunging metals prices. Fresnillo fell 10%, Antofagasta fell 11% and Anglo American fell 5.7%.
Gold was trading at $4,544.53 an ounce on Friday, down from $4,688.75 on Thursday. The price of silver was 8.5% lower than the previous day and that of copper around 5.0% lower.
Political uncertainty and rising bond yields weighed on utilities, with Severn Trent down 8.0%, SSE down 7.7% and United Utilities down 7.5%.
The biggest risers on the FTSE 100 were Hiscox, up 202p to 1,841p, 3i Group, up 98p to 2,210p and 3i Group, up 98p to 2,210p.
The biggest decliners on the FTSE 100 were Airtel Africa, down 39.8p to 328.4p, Antofagasta, down 457p to 3,810p, Fresnillo, down 372p to 3,335p, Severn Trent, down 252p to 2,882p. pence and National Grid, down 102.5p to 1,188p.
Monday's global economic calendar includes industrial production, retail sales and unemployment data from China ahead of GDP data from Switzerland.
Monday's local corporate calendar includes full-year results from airline Ryanair and warehouse operator Big Yellow.
Contributed by Alliance News
