The FTSE 100 edged higher on Tuesday, closing up 12.90 points (0.1%) at 10,497.12, as investors digested the UK government's defence spending plans and cooling inflation data from Europe. The FTSE 250 ended slightly lower at 23,013.45, while the Aim All-Share rose 2.06 points (0.3%) to 772.17.
European Markets and Inflation Data
In European equity markets, the Cac 40 in Paris ended up 0.4%, and the Dax 40 jumped 1.5% in Frankfurt. Inflation slowed in the eurozone's two largest economies in June, boosting the likelihood of the European Central Bank keeping interest rates on hold at its next meeting. In Germany, annual inflation fell to 2.3% from 2.6% in May, according to provisional data from Destatis. In France, consumer price rises slowed to 1.8% from 2.4%, as petroleum product costs eased, statistics authority Insee reported. Euro area inflation figures for June are due on Wednesday.
Currency and Bond Markets
The pound traded at $1.3263 on Tuesday afternoon, up from $1.3247 on Monday. Against the euro, sterling firmed to €1.1614 from €1.1597. The euro traded lower against the dollar at $1.1419, down from $1.1422. Against the yen, the dollar was at ¥162.60, up from ¥161.93 on Monday, a 40-year low. ING said the Bank of Japan is widely expected to intervene over the coming days and weeks, noting that "Japanese officials have made it clear that the weak yen poses a threat to import costs and Japan's cost of living crisis." ING added that the BoJ might hold off ahead of possible dollar-positive event risks such as remarks from Federal Reserve chair Kevin Warsh and the June US jobs report, making Friday's US July 4th holiday a possible window for intervention.
In New York, the Dow Jones Industrial Average was up 0.1%, the S&P 500 rose 0.5%, and the Nasdaq Composite was 1.1% higher. The US 10-year Treasury yield traded at 4.40% on Tuesday, widening from 4.39% on Monday, while the 30-year yield stretched to 4.89% from 4.86%.
UK Economic and Defence News
Back in the UK, data from the Office for National Statistics showed real GDP increased by an unrevised 0.6% in the first quarter. Meanwhile, Prime Minister Keir Starmer announced plans to spend almost £300 billion over the next four years to modernise the nation's armed forces. The proposals include more drones, uncrewed vehicles, and an upgrade to the UK's nuclear deterrent, with an extra £15 billion being pumped into defence spending up to 2030. Starmer called it a "huge historic shift for our nation and a legacy in which I take pride." Defence contractors Babcock International and BAE Systems rose 3.3% and 2.0% respectively, while QinetiQ climbed 2.4%.
Dan Coatsworth, head of markets at AJ Bell, said the extra funding "fired up" shares in defence contractors, giving a "leg-up to a sector that had lost momentum following a storming run in recent years." He added, "The big unknown is how long the new rally will last. Investors had recently grown tired of the 'more defence spending is coming' messaging given it is old news to the market. Shares in the sector have already priced in a stronger earnings pipeline, with valuations starting to look toppy for many key stocks."
Commodities and Other Movers
Brent crude for August delivery traded higher at $73.04 a barrel on Tuesday, up from $72.85 on Monday. David Morrison at Trade Nation noted that Brent has flattened out over the past week, saying, "Having pulled back dramatically since mid-May, oil has been unable to make further downside progress. Yet buying interest hasn't been sufficient to trigger any kind of rebound so far." Gold traded at $4,032.83 an ounce, up from $4,023.68 on Monday.
On the FTSE 100, Sainsbury rose 1.3% after a better-than-expected quarterly sales update. The food retailer said total retail sales, excluding fuel, rose 2.7% on-year in the 16 weeks to June 20 to £9.15 billion from £8.92 billion, ahead of 2.4% growth forecast by company-compiled consensus. Like-for-like sales, excluding fuel, were up 2.1%, ahead of 1.9% consensus. Sainsbury said, "We have had an encouraging start to the year," but cautioned the impact of the conflict in the Middle East "remains uncertain." Shell shares were up 1.1% after Bloomberg reported it is nearing the sale of its fuel stations in South Africa to a unit of Abu Dhabi National Oil for around £1 billion. The deal would give Adnoc control over 600 retail fuel outlets in South Africa, or around 10% of the market.
FTSE 100 Risers and Fallers
The biggest risers on the FTSE 100 were Polar Capital Technology Trust, up 27.5p at 713.0p; Babcock International, up 30.8p at 951.8p; Scottish Mortgage Investment Trust, up 45.5p at 1,470.5p; Melrose Industries, up 12.9p at 474.9p; and St James's Place, up 30.5p at 1,211.5p. The biggest fallers were Entain, down 32.4p at 559.0p; Smith & Nephew, down 53.0p at 1,090.5p; Vodafone, down 3.85p at 99.6p; BT, down 6.1p at 190.1p; and Burberry, down 33.0p at 1,062.0p.
Wednesday's global economic calendar includes a slew of manufacturing PMI reports, eurozone CPI data, and the ADP private payroll report in the US. The local corporate calendar has a trading statement from Primark owner Associated British Foods and retailer Topps Tiles.
