London's stock markets experienced a downturn Wednesday, with the FTSE 250 hitting a five-month low and the pound depreciating against major currencies. Concerns over potential stagflation and a global sell-off in government bonds fueled the decline.
The FTSE 250, a more domestically focused index, plummeted 2%, reflecting pressure on mid-cap stocks. Simultaneously, 30-year gilt yields spiked to a 25-year high of 5.36%. This rise, coupled with anxieties about the UK economy, dampened investor sentiment.
Investors are reacting negatively to the UK's economic outlook, viewing the surging borrowing costs not as an attractive investment opportunity, but rather as a sign of underlying economic weakness. This trend is mirrored across international markets, though the UK appears to be disproportionately affected.
The pound declined by 1% against the US dollar, hitting its lowest level against the greenback since April 2022. Further pressure was evident in its performance against the euro, which saw a 0.6% drop.
European markets also experienced declines, with the CAC 40 in Paris falling by 0.49% and the DAX in Frankfurt by 0.05%. Meanwhile, US markets started with caution, with the S&P 500 and Dow Jones indices largely unchanged by the close of European trading.
Company-specific news also impacted market sentiment. Energy giant Shell reported a $1.3 billion (£1 billion) expected loss in the final quarter due to emission certificate payments. The company also forecasts significantly lower gas profits in Q4 due to expiring hedging contracts, leading to a 1.4% drop in Shell shares.
Conversely, model train manufacturer Hornby saw its share price surge 12.2% after reporting strong Christmas sales, with revenues up 8% year-to-date. This positive performance contrasts with the broader negative trend in the market.
