Market Report: UK markets lag as global yields stall, but UK gilts continue to climb
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “UK markets opened broadly flat this morning, feeling continued pressure from rising UK bond yields (gilts) and shifting rate expectations as investors grappled with persistent inflation concerns. The yield on the UK 10-year gilt climbed to 4.9%, its highest since July 2008, as traders once again pared back expectations for Bank of England rate cuts in 2025. With inflation data looming and markets anticipating steady annual inflation at 2.6%, but a slight dip in the core rate to 3.4%, the focus remains on how stubborn price pressures will influence monetary policy and broader economic sentiment.
JD Sports is tanking this morning after a sales miss and a cut to profit guidance, reflecting ongoing external challenges in a volatile market. While footwear and international segments performed well, core UK/USA operations lagged, prompting management to cut revenue and profit guidance. The retail powerhouse has been pushing on with expansion plans into what looks like a difficult market, and with performance starting to dip, there will no doubt be question marks around that strategy.
US markets were mixed last night as the fallout from Friday’s strong employment numbers, seen as a negative for rate-sensitive equities, continued to weigh on sentiment. The 10-year Treasury yield offered a slight reprieve, steadying at around 4.8%, and that looks to be enough of a catalyst to push US futures higher for now. But levels like this continue to support the “higher for longer” narrative, keeping the pressure firmly on stocks. Despite a small tick higher last night, the S&P 500 has erased around $2.5 trillion in market cap over four weeks as fear begins to take hold. Defensive positioning in sectors like Energy and Materials was last night’s theme as investors continue to pivot away from high-growth names with the Nasdaq falling. With rate expectations now the driving force behind market moves, key inflation data midweek will continue to shape the narrative for the early parts of 2025.
Chinese stocks surged overnight, rebounding from three-month lows after China’s securities regulator pledged to stabilize markets following a weak start to the year. The China Securities Regulatory Commission emphasised that maintaining market stability would be a top priority in 2025, collaborating with the central bank on funding facilities to support stock purchases. Buoyed by this reassurance and upbeat views from major investment banks on corporate earnings and policy support, nearly all sectors advanced, with technology, new energy, and financial stocks leading the gains. This latest rally highlights the growing volatility in Chinese markets, which increasingly hinge on every stimulus signal.
Brent crude oil futures dipped to around $80.5 per barrel on Tuesday, staying near four-month highs as tougher US sanctions on Russia’s energy sector stirred supply fears. These measures have disrupted global flows, with India and China scrambling for alternatives and barring sanctioned vessels, while Europe pushes to slash the $60 price cap on Russian oil. Still, weaker demand from China, where crude imports fell in 2024 for the first time in two decades, could pour cold water on the tightening supply narrative.”
