The FTSE 100 kicked off the new year on the front foot with a morning rally after the fallout from the United States’ capture of Venezuelan President Nicolas Maduro sent a batch of City stocks on the march.
London’s blue-chip index sprung up towards the 10,000 points mark as markets opening before giving up some gains to land 0.2 per cent higher at near 9,970.
Leading the pack was defence and metal stocks after President Donald Trump’s strike on Venezuela – and openess to further escalation with other nations – sent jitters across markets.
Gold miners Endeavour Mining and Fresnillo were among top risers with gains of over four per cent, which comes after the price of the “safe haven” asset jumped 2.2 per cent in early trading to $4,424 an ounce.
Meanwhile, defence stocks were benefiting from the rising tensions with shares in blue-chip giant Babcock netting an all-time high at 1,329p after a 4.4 per cent rally. BAE Systems was up 4.5 per cent and Rolls-Royce 2.3 per cent.
It comes after Trump refused to rule out military action in Colombia telling reported in Sunday it “sounds good to [him]” whilst also doubling down on previous suggestions the US “need” Greenland and is considering an offensive on Cuba.
Foreign Secretary Yvette Cooper is expected to make a statement to MPs following the US’ operation to lay out the government’s formal response.
Chris Beauchamp, chief market analyst at IG, told City AM the slow influx of corporate news for the New Year was “more than compensated” by the fallout in Venezuela.
US could dictate China’s oil supply
On Saturday, Trump announced the capture of Venezuelan President Maduro, who is set to appear in US Federal Court in New York. Trump has clamped down on Venezuela following accusations of the nation dumping its prisoners into the US and failing to stop the flow of fentanyl into the country.
But oil has also remained a central piece to the conflict with Venezuela holding the world’s largest estimated oil reserves, though the country’s output remains at a fraction of capacity due to decades of mismanagement.
Trump has said the US plans to “run” Venezuela and insert its own oil majors to the country to control and ramp up its oil production.
“We’re going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country,” the President said.
The US’ Energy Information Administration estimates Venezuela has near 303bn barrels worth of crude – near 20 per cent of the world’s resource – but exports just 900,000 per day with China acting as the biggest customer.
Bejing has urged the US to “stop toppling” the Venezuelan government with the top diplomat of China accusing the White House as behaving like a “world judge”.
Despite the rising tensions, oil prices have remained subdued in the fallout.
Brent crude dropped near 1.3 per cent despite Trump’s pledge to pump billions into the oil-rich nation to fix infrastructure.
Analysts expect China to be forced to pay higher rates for oil, should the US maintain control of Venezuelan production.
Jordan Rochester, an analyst at Mizuho Bank, said: “By controlling Venezuela, the US doesn’t need to own the oil; it just needs a hand on the tap.
“This shapes global energy flows and decides whether China gets cheap heavy crude or has to pay market rates elsewhere.”