Market snapshot: UK markets in unconvincing form

UK markets are in unconvincing form ahead of a week which is likely to bring more ominous portents from unemployment, retail sales and GDP releases.

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On the one hand, low expectations for the numbers could serve both to vindicate the Bank of England’s knife-edge decision to cut interest rates last week and to provide some room for manoeuvre in beating these estimates. By the same token, the interest rate decision has brought the likelihood of further cuts into question given the stickiness of inflation, despite the economy showing few signs of meaningful progress as it continues to reel from previous Budget moves.

More broadly, the meeting between Trump and Putin later in the week has been taken as a sign that the Ukraine conflict could be nearing an end. The oil price has drifted further as a result on the back of potentially increased supply, bringing its decline so far this year to 11% and putting some slight pressure on the oil majors.

The defence sector has also taken a hit on the basis of a lesser need for spending, although the measures already announced are unlikely to be dialled back. Some weakness in the current trading session has done little to derail the progress of the standout stocks, with year to date gains of 87%, 81% and 47% for Babcock International Group (LSE:BAB), Rolls-Royce Holdings (LSE:RR.) and BAE Systems (LSE:BA.) respectively.

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Marks & Spencer Group (LSE:MKS) found some new buying friends as it resumed its click and collect service, with the revitalised and well-regarded retail bellwether extending its 139% share price increase over the last three years. WPP (LSE:WPP), meanwhile, attempted a relief rally on vague rumours of stake building, although the price remains down by 55% so far this year, largely around concerns of the potentially debilitating effect of artificial intelligence (AI) on the sector.

The limited premier index progress nonetheless continues to cement its position as an increasingly attractive investment destination, and the FTSE 100’s rise of 11.5% in the year to date has been accompanied by a rise of 6.2% for the FTSE 250.

The move follows a strong finish to the week in the US, where the main indices were buoyed by more mega-cap tech stock interest, with Apple Inc (NASDAQ:AAPL) being the star of the show. The announcement that it would be investing a cumulative $600 billion locally was well received, while also likely exempting it from any damaging presidential tariffs. The shares rose by around 14% over the course of the week.

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The wind down of what has been a successful earnings season has begun, although corporates have been clear in their caution on immediate prospects given the spectre of potential inflation. This brings investors to a strange tariff impasse – has the market strength been driven on expectations that levies have reached their peak and some will yet be negotiated down, or – less likely – that the US President is correct that his actions have been received with open arms by markets?

In any event, the inflation figures tomorrow could provide further colour, although if hotter than expected there could be some violent adverse reaction, not least of which because it could bring the Federal Reserve’s apparently obvious decision to cut next month into question. In the meantime, the main indices are providing strong momentum in the year to date, with gains of 3.8%, 8.6% and 11% for the Dow Jones, S&P 500 and Nasdaq respectively.