The FTSE 100 was treading water on Wednesday as investors weighed economic data and political developments in the United States.
Expectations of higher interest rates for a prolonged period have sent US treasury yields higher, and the sell-off in US bonds is starting to show signs of rippling across financial markets.
At the same time, the removal of Kevin McCarthy as Speaker of the House of Representatives provided suggestions of disruption in Washington making US debt less attractive.
The FTSE 100 was up 1 point to 7,470 shortly after 1pm in London, while US futures looked set for a mildly higher open.
“It feels gloomy right now with a ‘higher rates for longer’ assumption helping to sour sentiment,” said AJ Bell investment director Russ Mould.
“This is reflected in the sell-off in bonds – with US government bond yields hitting levels last seen in 2007, not a year with particularly happy memories for investors.
“The most recent catalysts include the JOLTS job openings survey, which showed a surprisingly buoyant US labour market, and the uncertainty across the Atlantic created by a closely averted government shutdown and the shock ousting of Republican speaker of the House of Representatives Kevin McCarthy.”
There was a slight tick-up in US futures after US ADP jobs data came in worse than expected.
FTSE 100 movers
FTSE 100 constituents were pretty evenly split between gainers and losers on Wednesday, with a noticeable bid in more defensive shares while cyclical shares slipped.
Miners, oil majors, retailers and housebuilders were weaker as investors bought into consumer staples and utility companies.
Tesco was the top riser after first-half sales rose 8.4% to £30.8bn, and underlying operating profit jumped 13.9% to £1.5bn.
“It seems Tesco’s performing its own supermarket sweep, knocking competition out the way in the process and loading up on market share,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“As a full-line retailer it maintains an edge over the likes of Lidl and Aldi where you can’t quite find some more obscure ingredients. The enormous investment Tesco’s put in to being more affordable has also helped retain and attract customers while inflation’s been running so hot.”
Tesco shares were 3.9% higher at the time of writing.