The FTSE was heading into the weekend with a marginally negative tone on Friday as investors assessed the growing pressure on UK debt sparked by concerns about the country’s fiscal health.
A slower growth outlook and a stubborn inflation rate create a toxic mix for UK bonds, which saw benchmark yields hit multi-year highs this week.
The subsequent drop in the pound supported London’s leading index due to its weighting to companies that report on foreign currencies that have risen against sterling.
“Broadly speaking however, the LSE’s biggest names are shrugging off the increasingly bearish outlook for the UK economy as government borrowing costs as measured by 10-year gilt yields hover around the highest level seen since 2008,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“That’s prompted the Treasury to provide assurances it won’t break its own fiscal rules. Worries abound around the potential for growth, tax hikes and interest rates, but the international nature of the index means it’s not totally correlated to British economic conditions.”
The impact of a weaker pound on the index so far this week was less pronounced on Friday, and weakness in UK-centric stock, including banks, supermarkets and retailers, weighed on the index. Housebuilders were the exception, as Persimmon and Taylor both gained more than 1%.
Although the FTSE 100 is down slightly on Friday, it has managed to carve out minor gains since the turn of the year.
Sainsbury’s wrapped up a very soft week of festive trading updates for FTSE 100 retailers as shares fell 2% on the news like-for-like sales slowed again, despite gaining market shares over the key festive trading period. Investors will also be concerned about the outlook amid rising national insurance rates.
“Sainsbury’s has come on leaps and bounds with its grocery operations in recent years, fighting off the competition from Aldi and Lidl at the discount end and enticing people at the upper end from Waitrose,” said AJ Bell investment director Russ Mould.
“Its price points have struck a chord with shoppers, both those looking for a bargain on staples and those who want good quality items but don’t want to pay a pretty penny. Strategically, it is in a much better shape these days, but its situation is far from perfect.
“The story with Sainsbury’s is the same as it has been for the past year: Groceries are great, Argos less so. This would be fine if the supermarket chain wasn’t fussed with non-food interests, but Argos is a central part of its strategic growth plan so it has a problem on its hands.
“As it stands, the biggest part of its business is firing on all cylinders and the side attractions are the laggards, including clothing. Argos’ lacklustre performance has dragged for six consecutive quarters, which in anyone’s book is a big warning sign.”
Sainsbury’s soggy update dragged on Tesco shares, which gave up another 2% after falling yesterday.
After being upgraded to ‘overweight’ by Morgan Stanley, Reckitt Benckiser was the top riser.