The FTSE 100 closed down just 4.11 points at 10,265.32 on Tuesday, showing resilience despite a triple whammy of domestic political strife, surging US inflation, and a lack of progress in the Middle East. The FTSE 250 ended down 341.66 points, or 1.5%, at 22,466.20, and the AIM All-Share fell 11.75 points, or 1.4%, at 810.66.
Currency and Bond Markets
The pound dropped to $1.3505 on Tuesday afternoon from $1.3651 on Monday. Against the euro, sterling was lower at €1.1517 from €1.1584. The yield on UK 10-year gilts rose to 5.10% from 5.01% the day before, reflecting investor unease.
Political Turmoil
Prime Minister Sir Keir Starmer defied calls to resign despite over 80 Labour MPs demanding he step aside. During crunch talks with ministers, he stated, "The Labour Party has a process for challenging a leader and that has not been triggered." He added, "The country expects us to get on with governing. That is what I am doing and what we must do as a Cabinet."
Banking Sector Hit
Banks sold off amid reports of a possible windfall tax if leadership changes. JPMorgan noted, "Banks narrowly avoided a higher tax rate at the last budget, but our base case now assumes the UK banking surcharge to increase from 3% to 5%." NatWest fell 3.2%, Lloyds Banking Group dipped 4.4%, and Barclays declined 3.6%.
Housebuilders Under Pressure
Surging bond yields weighed on interest rate-sensitive housebuilders, with Barratt Redrow down 4.1% and Taylor Wimpey 2.4% lower.
Middle East Tensions and Oil Prices
Another spike in oil prices added to uncertainty as the Middle East impasse continued. Iran’s chief negotiator said Washington must accept Tehran’s latest peace plan or face failure. David Morrison at Trade Nation commented, "Relations between Washington and Tehran appear to be more strained than at any time since the original ceasefire was announced just over a month ago." Brent crude for July delivery traded at $108.07 a barrel, up from $103.70 at Monday's close.
US Inflation and Global Markets
US annual CPI inflation accelerated to 3.8% in April from 3.3% in March, above expectations of 3.7%. Core CPI rose 2.8% year-on-year, up from 2.6%. TD Economics said the data reinforces why the Fed needs to remain "patient," while Bank of America noted inflation is getting "very uncomfortable" for the Fed. Fed futures now price a 60% probability of a rate hike by March next year.
In Europe, the CAC 40 fell 1.0% and the DAX 40 declined 1.6%. In New York, the Dow Jones was down 0.5%, the S&P 500 fell 1.0%, and the Nasdaq Composite dropped 1.7%. The US 10-year Treasury yield rose to 4.46%, and the 30-year yield stretched to 5.02%.
Currency Movements
The euro traded slightly lower at $1.1729 from $1.1782. Against the yen, the dollar rose to 157.73 from 157.01.
UK Stock Movers
Vodafone fell 7.0% after mixed full-year results. Dan Coatsworth at AJ Bell noted, "In the stock market it’s often said that it’s better to travel than arrive." Intertek led risers, up 6.4%, after reviewing a takeover proposal from EQT. On the FTSE 250, Greggs rose 8.0% on higher sales, while Wickes plunged 12% on mixed trading. Gold traded lower at $4,663.87 an ounce from $4,733.27.
The biggest FTSE 100 risers included Intertek, British American Tobacco, Compass Group, Imperial Brands, and London Stock Exchange Group. The biggest fallers included Vodafone, 3i Group, St James’s Place, Lloyds Banking Group, and Marks & Spencer.
Outlook
Wednesday’s global economic calendar features eurozone industrial production and GDP data, the King’s Speech in the UK, and US PPI figures. The local corporate calendar includes a trading statement from Spirax Group.
