FTSE Craters as Oil Soars Past $100

The FTSE 100 index plummeted to its lowest level since late July as oil prices surged above $100 a barrel for the first time in nearly four months. The sudden jump in oil prices has reignited concerns about inflation and higher interest rates, sending shockwaves through the financial markets.

The FTSE 100 fell 1.31% to 10,670.06, while the mid-sized FTSE 250 dropped 0.99% to its lowest since early August. Banks were among the hardest hit, with HSBC down 1.6%, Barclays declining by 2%, and Lloyds falling 2.2%. However, oil majors like BP rose 1.3% and Shell edged up 0.1%.

The spike in oil prices has a direct impact on fuel, shipping, and energy-intensive goods, keeping inflation sticky even if the underlying economy is cooling. As a result, bond investors sold UK government bonds (gilts), driving the 2-year UK gilt yield to its highest since November 2023.

This move signals that markets believe central-bank rates may stay higher for longer. For the UK, an energy shock can be particularly uncomfortable as it imports more oil than it produces. With key US inflation data and UK growth figures due this week, investors are trying to differentiate between higher rates driven by strong growth and those driven by rising inflation.