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.

Cash-strapped Romania-focused copper miner Vast Resources has turned to its CEO to provide short-term funding through a €500,000 loan.

Vast Resources has lost around 90% of its market value since the beginning of 2024 as it grapples with a large debt pile and legal cases.

The unsecured loan provided by the CEO will be repayable once the company completes its funding process and achieves sufficient financial stability, should that ever be achieved. This interim financing solution comes as Vast Resources works to conclude various funding options previously disclosed to the market.

The company has outstanding debts of over €5m and was threatened with enforcement action last year by creditors.

Vast Resources has axed around half of its workforce at mines in Romania, but copper production in Q2 also fell by around half due to legal issues not directly related to the reduction in workforce.

A placing at the end of last year provided £750,000 in funding, which appears to be fully deployed given the need for today’s CEO loan. Vast said they will update the market in due course.

Enteq Technologies, the AIM-listed energy services engineering company, has announced potential cash flow challenges as it continues development of its SABER drilling technology.

An update released on Friday indicates uncertainty around expected revenue timing and additional engineering costs.

Recent testing of the SABER Tool at Oklahoma’s Catoosa Test Facility in December 2024 demonstrated basic operational capabilities, successfully achieving directional drilling objectives. However, the tests also revealed the need for additional engineering modifications and operational procedure updates, adding to development costs and timeline extensions.

This delay impacts the company’s anticipated revenue timeline, putting pressure on its cash resources.

Management has indicated that the current cash runway is shorter than previously estimated, considering the ongoing development costs and uncertain revenue timing. In response, Enteq is actively focusing on cash preservation measures, though specific cost-saving initiatives have not yet been detailed.

Sainsbury’s shares followed Tesco and Marks & Spencer’s playbook on Friday as the supermarket’s shares fell after the release of festive sales figures.

Sainsbury’s has reported reasonable Christmas trading performance, with sales growing 3.8% during the crucial six-week festive period to January 4, 2025. The UK’s second-largest supermarket chain saw particular success in its grocery division, which matched the overall growth rate of 3.8%.

“We have won grocery market share for the fifth consecutive Christmas, with more customers choosing Sainsbury’s for their big shop. Driven by our leading combination of quality, value and service, we have achieved seven consecutive quarters of volume performance ahead of the market and further accelerated our two-year volume growth,” said Simon Roberts, Chief Executive of J Sainsbury plc.

The strong performance was underpinned by record customer satisfaction scores both online and in supermarkets during the Christmas period. The company’s premium Taste the Difference range performed particularly well, with sales growing by 16% in the key Christmas weeks, outpacing both the market and major competitors.

The success was further supported by the expansion of Nectar Prices to over 9,000 products and the introduction of Aldi Price Match in Convenience stores, an industry first that has driven strong customer response.

The disappointment for investors may be that like-for-like sales growth again fell, continuing the trend of quarterly declines in like-for-like sales growth.

General merchandise was a bright spot. The retailer’s general merchandise and clothing segment showed encouraging signs of recovery, posting a 3.4% increase over the Christmas period, despite being relatively flat for the full quarter. Argos, while facing challenges earlier in the quarter, delivered positive results with sales up 10.2% in the six weeks to January 4, or 1.1% when adjusted to include Black Friday trading in both comparative periods.

“Keep in mind that Sainsbury’s is more exposed to general merchandise than its peers through its ownership of Argos,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“General merchandise is the most cyclical area of the supermarket economy to be in, so being overweight in this arena really slows you down when times get tough. Luckily, the festive season helped drive a need for toys and sales picked up slightly in the run-up to Christmas. The overall solid third-quarter performance means full-year profit targets remain on track, with the group expecting growth of around 7% to £1,035mn.”

The retailer has also upgraded its Financial Services profit forecast to around £30 million, up from its previous guidance of £15-25 million.

The FTSE 100 surged Thursday as overseas earners jumped on a weakening pound amid rising concerns about the UK’s economic health.

Negative moves by retail shares Marks & Spencer, Sainsbury’s and Tesco were insufficient to derail a rally driven by multinationals listed on London as sterling’s inverse relationship with the FTSE 100 kicked in. Today’s trade is a perfect example of why the FTSE 100 is by no means a representation of the UK economy.

The FTSE 100 is often seen as a defensive index partly due to its weighting to overseas earners who tend to benefit from a weaker pound. 

On many occasions, the weaker pound results from a bid in the dollar due to financial market risk aversion. However, today, the weaker pound is the consequence of concerns about the UK economy, which are sending bond yields to levels not seen for many years. 

Slowly souring sentiment towards the UK has picked up this week as concerns mount about the country’s fiscal health and economic outlook caused by policy decisions by the Labour.

“Turmoil in the markets implies a massive loss of confidence in the UK government. The 30-year gilt yield briefly hit 5.445%, surpassing the Liz Truss crisis period, and the pound slumped to $1.2256 against the US dollar which is the lowest level since November 2023,” said Russ Mould, investment director at AJ Bell.

“The feel-good factor around the UK following last summer’s general election has quickly disappeared and turned to gloom as companies brace themselves for higher costs and consumers worry about job security and the cost of living going up again.

“Investors are worried about extra borrowing by the government to achieve its plans. However, it is worth noting that the pound remains considerably stronger than when Liz Truss briefly ran the country. The UK is also not alone in seeing a higher cost of borrowing for the government as the US has also seen higher yields.”

As the pound sank against the dollar, companies that report earnings in dollars jumped to the top of the FTSE 100 leaderboard. Mining companies led the index higher, with Antofagasta storming 4.9% higher. Anglo American and precious metals miner Fresnillo gained more than 4%.

Smith & Nephew, Shell, InterContinetal Hotels, and AstraZeneca all rose on little else than a weaker pound.

A raft of retailers including M&S, Tesco and B&M reported on Thursday. The market reaction was hostile. Sales growth hasn’t been enough to keep investors happy, with expectations high going into results. The concerns around the UK economy will not help matters for the companies that are largely reliant on the UK for earnings.

M&S shares plummeted 6% despite the group having its strongest trading period ever over the Christmas break.

“Despite reporting resilient Christmas performance across the board, retailers Tesco, Marks & Spencer and B&M saw their shares come under pressure as the glass half empty market seized on any traces of negativity. The wider backdrop of surging UK gilt yields and a slump in the pound was doing nothing for sentiment towards domestic stocks,” Russ Mould explained.

Tesco shares were 1% and the time of writing and dragged Sainsbury’s down with them.