8th Jan 2025 17:08
(Alliance News) - The FTSE 250 plunged and sterling slid on Wednesday - although blue-chips held firm - as surging bond yields unsettled markets.
The FTSE 100 index ended up 5.75 points, 0.1%, at 8,251.03. The FTSE 250 tumbled 398.13 points, 2.0%, at 19,952.24. The AIM All-Share fell 5.17 points, 0.7%, at 720.11.
The Cboe UK 100 closed up slightly at 826.14, the Cboe UK 250 shed 2.2% at 17,376.45, while the Cboe Small Companies fell 1.4% at 15,630.82.
In Europe on Wednesday, the CAC 40 fell 0.5% while the Dax in Frankfurt declined 0.1%.
The sell-off in the bond market came as traders factor in fewer interest rate cuts in 2025 due to sticky inflation. This prompted yields on the UK 10-year gilt to hit 4.80%, a 15-year high.
Kathleen Brooks, research director at XTB said: "It feels like the UK is in a tricky spot, and with UK CPI set to be released next week, the focus on the UK bond market could continue for some time."
Rising bond yields raised fears that Chancellor Rachel Reeves may have to raise taxes further, squeezing fiscal headroom.
Peel Hunt's Kallum Pickering commented: "While the government’s plans for a (partly) debt-financed fiscal expansion should support growth momentum over the medium term, if the resulting rise in bond yields reduces private economic activity, it could turn out to be a badly judged policy choice.
"In addition, rising bond yields push up government borrowing costs and pose a problem for Chancellor Rachel Reeves' ability to meet her self-imposed fiscal rules – which include hitting a current budget (excluding public investment) surplus by 2029/30. If bond yields rise further, Reeves may be forced to make the economically damaging decision of further increasing taxes or cutting back on planned public spending to balance the books."
Also weighing on sterling, President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries, CNN reported.
The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as "IEEPA," which unilaterally authorises a president to manage imports during a national emergency, the report noted.
On Monday, a report in the Washington Post said aides to Trump are exploring tariff plans that would be applied to every country but only cover critical imports, a shift from his plans during the 2024 presidential campaign.
But Trump denied the claims.
The pound slumped to USD1.2351 on Wednesday afternoon, down from USD1.2498 at the time of the local equities close on Tuesday.
The euro fell to USD1.0303 against USD1.0377. Versus the yen, the dollar was higher at JPY158.37 from JPY157.77.
The dollar's latest gains were not tempered by figures showing a further slowing in private sector payroll growth.
According to the ADP National Employment Report, private sector employment increased by 122,000 jobs in December, slowing from 146,000 in November and continuing the downturn from 184,000 in October. A drop to 140,000 had been predicted according to FXStreet consensus.
"The labour market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains," said ADP Chief Economist Nela Richardson.
The reading comes ahead of the nonfarm payrolls print on Friday.
Attention later on Wednesday will focus on minutes from December's Federal Open Market Committee meeting, at which Fed officials projected just two 25 basis points rate cuts in 2025, against the four forecast at September's meeting.
On Wall Street, markets were steady after a weak start to trading. At the time of the London close, the Dow Jones Industrial Average and S&P 500 were up 0.1%, while the Nasdaq Composite was little changed.
Bond yields are also on the rise across the pond with the US 10-year yield now close to 4.7%.
On London's FTSE 100, rate sensitive housebuilders and property stocks fell back.
Barratt Redrow fell 4.8%, Taylor Wimpey declined 3.8% and British Land dipped 3.9%.
BAE Systems fared better, rising 3.1%, after Donald Trump called on NATO to increase defence spending, while London Stock Exchange, up 1.6%, was named as one of Bank of America's '25 for 2025'.
Shell shares fell 1.0%. It reported that it expects to report a decline in Integrated Gas output for the fourth quarter, weaker trading & optimisation results for the unit, and well write-offs.
The oil major expects to report final-quarter Integrated Gas production between 880,000 to 920,000 barrels of oil equivalent per day, a decline from 941,000 in the third quarter of 2024.
Trading and optimisation results in the unit are "expected to be significantly lower" than in the third quarter. This is driven by the non-cash hit from the expiration of hedging contracts. Fourth-quarter well write-offs of around USD300 million are expected in Integrated Gas.
"The commodity price backdrop wasn't helpful for Shell in the last quarter of 2024 but oil prices have been gaining ground in the early weeks of 2025 amid declining OPEC production and continuing signs the US economy remains robust," AJ Bell analyst Russ Mould commented.
Flutter Entertainment shares rose 0.6% despite warning US revenue will be weaker than expected, hurt by punter-friendly sports results. The gambling firm said "strong US player momentum" has been offset by "very unfavourable US sports results across the remainder of November and in December".
Flutter said the 2025/25 National Football League season in gridiron has been "the most customer friendly since the launch of online sports betting with the highest rate of favourites winning in nearly 20 years".
At USD5.78 billion, US revenue for 2024 is now expected to be some USD370 million lower than its previous guidance midpoint. US adjusted earnings before interest, tax, depreciation and amortisation are expected to be around USD205 million lower than the previous guidance midpoint at around USD505 million.
Entain shares fell 2.7% in a negative read across. Entain owns Ladbrokes.
A barrel of Brent fetched USD76.25 on Wednesday afternoon, down from USD76.83 at the time of the London equities close on Tuesday. Gold climbed to USD2,665.55 an ounce from USD2,654.67.
Thursday's global economic diary sees US weekly jobless claims data and a German industrial production print.
Thursday's local corporate calendar sees trading statements from retailers Marks & Spencer, Tesco and Greggs.
By Jeremy Cutler, Alliance News reporter
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