Must read: Middle East conflict, oil, safe havens, airlines, Metro Bank

GLOBAL MARKETS

The Middle East conflict is dictating price action on Monday with European bourses opening mostly lower.

The FTSE 100 is bucking the trend, eking out a modest gain driven by defence giant BAE Systems (LSE:BA.) which has rallied to the top of the index amid expectations of increased defence spending. BP (LSE:BP.) and Shell (LSE:SHEL) are also outperforming on the back of rising oil prices and Fresnillo (LSE:FRES) is staging gains as investors flock to safe havens like silver and gold.

British Airways’ parent company International Consolidated Airlines Group SA (LSE:IAG) has plunged over 5% amid a raft of flight cancellations to and from Tel Aviv.

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MIDDLE EAST CONFLICT 

Oil prices are staging gains, up by around 3%, driven by the escalation of violence between the Palestinian Islamist group Hamas and Israel. Israeli prime minister Benjamin Netanyahu said there’s a ‘long and difficult war’ ahead.  

It comes after oil suffered its worst weekly slide since March, reversing some of the sharp rally seen between June until the peak in late September. While Israel and Palestine are not oil producers themselves, the Middle East is a key region in terms of global oil output. The Israeli authorities have alleged that Iran, a supporter of Hamas and a key oil exporter, has had some involvement in the violence.

However, US Secretary of State Antony Blinken told CNN, ‘we have not yet seen evidence that Iran directed or was behind this particular attack.’ Any indication of significant involvement from Iran could negatively impact its oil exports and in turn lead to higher prices. Meanwhile, OPEC+ policy is expected to remain unchanged despite the geopolitical uncertainty, with Saudi Arabia and Russia sticking to their voluntary production cuts, also providing support for the oil market. 

As the war enters its third day, risk-off sentiment is gripping markets, lifting safe-haven assets like gold, silver, treasuries, the US dollar, and the Japanese yen. Meanwhile investors are selling riskier equities with US futures pointing to a weaker open. 

European airline stocks have opened sharply lower, weighed down by the conflict. IAG, easyJet (LSE:EZJ), Wizz Air Holdings (LSE:WIZZ) and Air France-KLM (EURONEXT:AF) are among the stocks in the sector under pressure. Wizz Air said that it has cancelled flights to and from Tel Aviv until further notice. Other airlines have also had to suspend their Tel Aviv flights in light of the violence. 

The Israeli shekel is also depreciating, touching its weakest level against the US dollar since 2016.

METRO BANK 

Metro Bank Holdings (LSE:MTRO) has agreed to a rescue deal - Colombian billionaire Jaime Gilinski Bacal will take control of the lender by becoming its largest shareholder, amassing a 52% stake by investing £102 million into the business. He’s contributing to Metro’s £325 million fund raise made up of £150 million of new equity and £175 million of new debt. Plus, it is refinancing £600 million of debt. CEO Dan Frumkin said this is ‘a new chapter’ for the bank. 

Over the weekend Sky News reported that NatWest Group (LSE:NWG) and Lloyds Banking Group (LSE:LLOY) were approached by regulators about a bid for some or all of Metro Bank. Santander UK was also reportedly working on an offer as the board sought out financing solutions before the Monday morning London stock market open. However, getting gobbled up by a big lender would clearly destroy Metro’s ambitions as a challenger bank. 

Last week was an extremely volatile period of trade for Metro Bank, with a sharp sell-off on Thursday following news it was looking to raise hundreds of millions of pounds in cash to boost its balance sheet, and ratings agency Fitch put the stock on negative watch. Treasury officials and the Bank of England were understood to be in discussions about the embattled lender. The stock then rebounded significantly on Friday following reports it was looking to sell off £3 billion of assets from its mortgage book. 

In a volatile start to Monday’s session, shares are surging this morning as investors cheer the rescue deal, However, over the long term the shares have plummeted, shedding more than 98% over the past five years, reflecting its longstanding financial woes and lack of investor confidence. Following its IPO in 2016 at £20 a share, the stock rallied to around £40 in 2018 but now its trading at just a fraction of that level, at around just 50p a share.