On Tuesday, the top share index in the United Kingdom rose, as defensive sectors recorded gains that outweighed energy and mining stocks that were dragged down because of fresh Chinese COVID-19 curbs and the possibility of further monetary policy tightening.
There was a 0.2% increase in the blue-chip FTSE 100 index and a 0.1% gain in the domestically focused FTSE 250. The former got a boost due to defensive sectors like consumer staples, as these are not very sensitive to the economic climate. There was a 1% gain in British American Tobacco, Reckitt Benckiser and Unilever.
However, the commodity-heavy FTSE 100 capped its gains due to the energy index and the industrial metal and mining index, which declined by 1.7% and 0.6%, respectively. This was because of a fall in commodity prices and a strengthening US dollar, higher global interest rates, and the lockdowns in China.
There was a 1.1% rise in travel and leisure stocks, as Wizz Air and owner of British Airways IAG rose 4.6% and 6.5%, respectively.
According to experts, the fact that oil has fallen below $100 a barrel has turned out to be good news for airlines, as fuel makes up the majority of their costs. This is what seems to be benefitting IAG. While nervous that had taken ahold of markets because of the fresh lockdowns expected in China and a slowdown in global economic growth had come down a little, markets still remained very sensitive.
Meanwhile, the new Prime Minister of Britain will be announced on September 5th, as the contest has become rather divisive and unpredictable, not to mention crowded. The first votes have already begun eliminating candidates who will replace Boris Johnson as the country’s premier.
There was a fall in the shares of real estate companies like Land Securities, British Land, and Hammerson between 1.8% and 4%. This was after their shares were downgraded by the Royal Bank of Canada, which said that recessionary trends, credit spreads’ deterioration, and higher interest rates had driven the space into ‘uncharted territory’.
There was a 1.2% rise in shares of Plus500 where mid-caps are concerned. This was after the online trading forecast shared its annual revenue and profit forecast. They turned out to be better than market expectations, as market volatility had given them a boost.
The British currency, on the other hand, was struggling to gain ground against the US dollar. The political turmoil and uncertainty in the country are expected to continue putting the sterling under pressure until at least the new leader is announced. Meanwhile, the US dollar itself is gaining a lot of strength, which is further pushing the British pound down.
The possibility of inflation heading towards the double digits is also a problem, as the Bank of England will be forced to take greater action in order to bring down this number to their target of 2%, which is easier said than done as it could trigger an economic recession.