The FTSE 100 was trading broadly flat on Monday as Babcock led a recovery following a soft start to the week.
London’s leading index is trading up 7 points at the time of writing after falling as much as 30 points in early trade. Donald Trump’s erratic approach to trade policies was again the main detractor from investor sentiment, but strength in the defence sector helped steady the ship after the UK government outlined plans to boost defence spending.
“Donald Trump has upset markets once again,” said Russ Mould, investment director at AJ Bell.
“Doubling import taxes on steel and aluminium, and aggravating China once again, mean we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.”
However, markets are approaching a stalemate with Donald Trump’s trade policies, with the threat they pose not going away, but doubts they will ever be enacted offsetting concerns about their potential impact on the global economy.
“We’re back in a situation of one step forward, two steps back, but there do appear to be expectations that more concessions will be struck,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Investors are getting used to aggressive statements being rolled back, so much so the TACO trade theory has rippled through Wall Street, which stands for ‘Trump Always Chickens Out’. But there’s no guarantee that the US President won’t follow through with more onerous restrictions, given he’s stayed steadfast to his pledge to bring more manufacturing back to the US.”
Beyond Trump’s latest volley of threats, investors in defence stocks welcomed the UK government’s commitment to increasing defence spending to 2.5% of GDP in the near term.
“The defence sector was in demand ahead of the UK government setting out its plans to protect the country and support allies. Babcock, BAE Systems and Rolls-Royce were among the stocks in positive territory as investors targeted an industry with a clear earnings tailwind,” Russ Mould explained.
Babcock was the top riser as traders positioned for a boost in spending on its submarines. Babcock currently supports the UK’s entire nuclear submarine fleet, accounting for more than a third of the group’s total revenue.
Anglo American was the top faller after announcing the demerger of Valterra. Anglo American shares were down 11% in London.