FTSE 100 near record highs, but $90 oil could change the picture fast

The FTSE 100 edged lower on Wednesday as another rise in oil prices and renewed Middle East tensions kept investors cautious ahead of a crucial US inflation report.

London’s blue-chip index traded around 10,830 in early dealings, extending this week’s subdued run after falling 0.17% on Tuesday.

The move left the FTSE 100 below its July record near 10,991, even as the broader European market continued to hover close to all-time highs.

Germany’s DAX was modestly higher, France’s CAC 40 slipped, while the STOXX Europe 600 was little changed near 661.

Oil gives the FTSE 100 a two-sided problem

Brent crude climbed towards $90 a barrel after fresh attacks on commercial shipping and fading hopes that the US and Iran would quickly agree on reopening the Strait of Hormuz.

Tehran has maintained that the waterway will stay restricted unless Washington accepts its conditions.

That creates a mixed setup for the FTSE 100.

Its heavy weighting towards energy and commodity companies can provide some protection when oil rises, but expensive crude also revives inflation concerns and threatens margins across transport, retail and consumer businesses.

The tension was visible across Europe. Energy shares rose about 0.7%, making them the strongest STOXX 600 sector, while automobiles and parts fell around 0.8%.

The geopolitical backdrop has also broadened beyond Hormuz.

A Houthi attack on a cargo vessel in the Red Sea killed crew members, while North Korea launched another ballistic missile and Taiwan criticised planned Chinese naval drills near its east coast.

Those developments reinforced demand for caution rather than triggering a wholesale equity sell-off.

Europe holds its records better than London

The FTSE 100’s hesitation contrasts with a broader European market that has been able to hold close to recent records.

The STOXX 600 was broadly flat around 661 in early trading, while the Euro STOXX 50 hovered near 6,550. Germany’s DAX gained about 0.1%, although France’s CAC 40 declined roughly 0.3%.

Corporate earnings helped prevent a deeper pullback.

German warship maker TKMS jumped after lifting its outlook for the second time in six months, while K+S advanced after another annual guidance upgrade.

TUI moved the other way after quarterly operating profit disappointed as softer bookings and higher fuel costs weighed on performance.

London also had some company-specific support. Balfour Beatty said full-year results should come in slightly ahead of previous expectations, supported by strong infrastructure demand and an order book of about £22.9 billion.

The contrast leaves the FTSE 250 important as well. Its greater exposure to the domestic UK economy means Thursday’s growth figures could matter more for mid-caps than for the internationally focused FTSE 100.

US CPI and UK GDP become the next tests

Wednesday’s US consumer-price report is the immediate macro catalyst.

Economists expect July headline inflation to rise 0.1% from June and slow to around 3.4% year on year from 3.5%.

Core inflation is expected to remain firmer, keeping the Federal Reserve’s September decision finely balanced. The Bureau of Labor Statistics is due to release the figures at 8.30 am ET.

The latest jump in oil will not be fully reflected in July’s data, but a hotter-than-expected reading could push Treasury yields higher and pressure equity valuations globally.

London then gets its own macro test on Thursday, with second-quarter UK GDP due from the Office for National Statistics.