The FTSE 100's impressive rally came to a halt on Wednesday, 7th January 2026, as declining commodity prices dragged the blue-chip index into negative territory. The index closed down 74.52 points, or 0.7%, at 10,048.21, ending its record-breaking run.
Geopolitical Tensions and Commodity Pressures
Analysts pointed to a combination of geopolitical headlines and shifting commodity markets as the key drivers behind the sell-off. Russ Mould, an investment analyst at AJ Bell, highlighted "murmurings about the fate of Greenland and lower oil and precious metals prices" as factors unsettling investors.
The oil market faced particular pressure after former US President Donald Trump's pledge to restructure Venezuela's oil industry and turn over millions of barrels to the US. This raised fears of a global crude oversupply. Brent crude fell to $60.37 a barrel at the London close, down from $61.59 the previous day.
David Morrison, Senior Market Analyst at Trade Nation, noted: "The prospect of increased supply acts as a headwind for prices, regardless of geopolitical headlines. Until that balance shifts, oil is likely to remain under pressure." Reflecting this, shares in BP fell 3.4% and Shell dropped 3.3%.
Miners and Mid-Caps Show Diverging Paths
The weakness extended to the mining sector, where stocks retreated as metals prices pared back recent gains. Gold slipped to $4,458.54 an ounce, silver fell 3.8%, and copper declined 3.0%. Leading the fallers on the FTSE 100 were miners Fresnillo, down 4.8%, and Antofagasta, down 4.4%.
In contrast, the domestically-focused FTSE 250 index gained 88.92 points, or 0.4%, to close at 22,880.81. This rise was supported by housebuilders and property firms, which advanced as UK government bond yields fell on expectations of lower interest rates. Barratt Redrow climbed 3.3% and Persimmon rose 2.8%.
Defence Stocks Rise and Economic Data Mixed
The simmering geopolitical climate provided a boost for defence contractors. BAE Systems gained 2.4% and Babcock International surged 3.8%, making it the biggest riser on the FTSE 100.
UK economic data offered a mixed picture. The latest S&P Global/CIPS UK Construction PMI showed activity remained in contraction for the 12th consecutive month in December, albeit at a slightly slower pace. Tim Moore of S&P Global Market Intelligence stated firms reported "subdued demand and fragile client confidence."
Elsewhere, the pound softened to $1.3472 against the US dollar. In Europe, the DAX 40 in Frankfurt soared past 25,000 for the first time, closing 0.9% higher, while the CAC 40 in Paris edged up 0.1%.
Looking ahead, the market's focus turns to corporate updates from Greggs, Marks & Spencer, and Tesco on Thursday, alongside key economic indicators including the UK Halifax house price report and US jobs data.
