The FTSE 100 index soared on Thursday as overseas earners took advantage of the weak pound amid growing concerns about the health of the UK economy.
Negative moves in retail stocks such as Marks & Spencer, Sainsbury’s and Tesco were not enough to derail a bull run by London-listed multinationals that began an inverse relationship between the pound and the FTSE 100. Today’s trade is a perfect example of why the FTSE 100 will never rise. A representative of the British economy.
– Advertisement –
The FTSE 100 is often seen as a defensive index due to its heavy weight on overseas earners, who tend to benefit from a weaker pound.
In many cases, the weakening of the pound is caused by financial market risk aversion bidding against the dollar. However, today’s weakness in the pound is a result of concerns about the UK economy, with bond yields rising to levels not seen in many years.
Sentiment that had been slowly deteriorating towards Britain has increased this week as Labour’s policy decisions raise concerns about the country’s fiscal health and economic outlook.
“The market turmoil represents a major loss of confidence in the UK government. The 30-year bond yield at one point reached 5.445%, above the level of the Liz Truss crisis, and the pound is at its lowest against the US dollar since November 2023. 1.2256,” said Russ Mold, investment director at AJ Bell.
“The upbeat atmosphere surrounding the UK following last summer’s general election has quickly dissipated, giving way to darkness as businesses brace for higher costs and consumers worry about job security and rising costs of living again.
“Investors are concerned that the government will take on additional borrowing to achieve its plans. However, it is notable that the pound remains significantly stronger than it was when Liz Truss briefly ruled the country. It’s not just the UK where government borrowing costs are rising, as US yields are also rising.
As the pound weakened against the dollar, companies reporting profits in dollars rose to the top of the FTSE 100 leaderboard. Mining companies led the index’s rise, with Antofagasta up 4.9%. Anglo American precious metals miner Fresniro rose more than 4%.
Smith & Nephew, Shell, InterContinental Hotels and AstraZeneca all rose due to factors other than the weaker pound.
A number of retailers reported on Thursday, including M&S, Tesco and B&M. Market reaction was hostile. Sales growth hasn’t been enough to satisfy investors, and expectations for performance are high. Concerns about the UK economy will not help businesses that rely heavily on Britain for their revenues.
M&S shares plunged 6% over the Christmas holidays, despite experiencing the group’s strongest trading period in its history.
“Despite reporting strong Christmas results across the board, retailers Tesco, Marks & Spencer and B&M saw their share prices come under pressure as negative signs began to emerge in a glassy, half-empty market. “The broader backdrop of surging UK gold yields and a weaker pound didn’t help sentiment towards domestic equities,” Russ Mold explained.
Tesco’s share price was down 1% at the time of writing, with Sainsbury’s also down.
