UK Markets Under Pressure as Gilt Yields Surge
London's FTSE 250 and the pound face downward pressures amidst rising long-term borrowing costs
London's financial markets encountered notable turbulence on Wednesday, with the FTSE 250 slumping to levels not seen in five months amid a dramatic spike in UK gilt yields.
At the same time, the pound weakened against major currencies, reflecting investor concerns about the UK's economic outlook.
The broader FTSE 100 index showed resilience, closing a barely positive 0.07% at 8,251.03 points.
In contrast, the FTSE 250, a more domestically inclined index, saw a sharp decline of 2%, influenced by intense pressures on mid-cap stocks as government borrowing costs surged.
This market upheaval coincided with a significant sell-off in the bond market, pushing the yield of 30-year UK gilts to 5.36%—a zenith not observed since 1998.
The rise in yields occurs against a backdrop of growing unease over stagflation risks and a broader global bond market downturn.
Chris Beauchamp, IG's chief market analyst, commented on the situation, noting, "The mood music around the UK continues to deteriorate as 30-year gilt yields rise to their highest level in over a quarter of a century.
Investors have come back from the festive break in a sour mood concerning the UK, and have now decided that the UK’s cheap status is not an attraction, but instead a reflection of the poor situation facing the British economy." Beauchamp's observations underscore a broader cautious sentiment in global markets, with the UK appearing more negatively impacted.
In currency trading, the pound's value decreased by 1% against the US dollar, settling at 1.2355—the lowest level since April of the previous year.
Sterling also weakened by 0.6% against the euro, trading at 1.199.
Across the Channel, market reactions were mixed; the CAC 40 in Paris dropped by 0.49%, while Frankfurt's DAX reflected a marginal decline of 0.05%.
Over in the United States, trading commenced in a cautious mood, with both the S&P 500 and Dow Jones indices remaining relatively flat by the time European markets wrapped up.
In corporate developments, Shell, the giant in the energy sector, announced it anticipates a $1.3 billion (£1 billion) financial impact in the final quarter due to payments for emissions certificates in Germany and the US.
The company also projected that its gas business profits would be 'significantly lower' than previous quarters owing to expired hedging contracts.
Shell's announcements led to a 1.4% drop in its share price.
Conversely, Hornby, the model train manufacturer, enjoyed a boost, attributing its surge in stock price to a successful Christmas trading period, which bolstered revenues, marking an 8% increase in group sales for the financial year.
The company's shares closed up by an impressive 12.2%.
Among the top gainers in the FTSE 100 were BAE Systems, which rose by 32p to 1,186p; Pershing Square, climbing 98p to 4,116p; DS Smith, up by 11p to reach 554p; Relx, ascending 71p to 3,770p; and Antofagasta, increasing by 30.5p to 1,664p.
However, several firms saw their stocks decline, with Barratt Redrow down by 21.3p to 398.7p, St James’s Place slipping by 42.5p to 820.5p, United Utilities decreasing 50.3p to 974.2p, JD Sports falling 3.96p to 97.54p, and Legal & General declining by 8.8p to 221.4p.
At the same time, the pound weakened against major currencies, reflecting investor concerns about the UK's economic outlook.
The broader FTSE 100 index showed resilience, closing a barely positive 0.07% at 8,251.03 points.
In contrast, the FTSE 250, a more domestically inclined index, saw a sharp decline of 2%, influenced by intense pressures on mid-cap stocks as government borrowing costs surged.
This market upheaval coincided with a significant sell-off in the bond market, pushing the yield of 30-year UK gilts to 5.36%—a zenith not observed since 1998.
The rise in yields occurs against a backdrop of growing unease over stagflation risks and a broader global bond market downturn.
Chris Beauchamp, IG's chief market analyst, commented on the situation, noting, "The mood music around the UK continues to deteriorate as 30-year gilt yields rise to their highest level in over a quarter of a century.
Investors have come back from the festive break in a sour mood concerning the UK, and have now decided that the UK’s cheap status is not an attraction, but instead a reflection of the poor situation facing the British economy." Beauchamp's observations underscore a broader cautious sentiment in global markets, with the UK appearing more negatively impacted.
In currency trading, the pound's value decreased by 1% against the US dollar, settling at 1.2355—the lowest level since April of the previous year.
Sterling also weakened by 0.6% against the euro, trading at 1.199.
Across the Channel, market reactions were mixed; the CAC 40 in Paris dropped by 0.49%, while Frankfurt's DAX reflected a marginal decline of 0.05%.
Over in the United States, trading commenced in a cautious mood, with both the S&P 500 and Dow Jones indices remaining relatively flat by the time European markets wrapped up.
In corporate developments, Shell, the giant in the energy sector, announced it anticipates a $1.3 billion (£1 billion) financial impact in the final quarter due to payments for emissions certificates in Germany and the US.
The company also projected that its gas business profits would be 'significantly lower' than previous quarters owing to expired hedging contracts.
Shell's announcements led to a 1.4% drop in its share price.
Conversely, Hornby, the model train manufacturer, enjoyed a boost, attributing its surge in stock price to a successful Christmas trading period, which bolstered revenues, marking an 8% increase in group sales for the financial year.
The company's shares closed up by an impressive 12.2%.
Among the top gainers in the FTSE 100 were BAE Systems, which rose by 32p to 1,186p; Pershing Square, climbing 98p to 4,116p; DS Smith, up by 11p to reach 554p; Relx, ascending 71p to 3,770p; and Antofagasta, increasing by 30.5p to 1,664p.
However, several firms saw their stocks decline, with Barratt Redrow down by 21.3p to 398.7p, St James’s Place slipping by 42.5p to 820.5p, United Utilities decreasing 50.3p to 974.2p, JD Sports falling 3.96p to 97.54p, and Legal & General declining by 8.8p to 221.4p.
