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.

After enjoying booming demand for its iconic sandals and broad range of footwear, the German company has filed to list on US markets and is said to seek a $9.2 billion valuation on its initial public offering (IPO) on the New York Stock Exchange.

Birkenstocks announced their plans to list shares in New York in the region of $44–$49 per share, which is expected to raise around $1.6 billion for Birkenstock and their private equity owner, U.S.-based company L Catterton.

L Catterton will have around a 83% stake in the company after the IPO.

Birkenstocks said most of the proceeds will go to repaying its current debt and has no plans to pay a dividend in the near term.

Birkenstock generated €1,242.8 million in revenue in fiscal 2022, up from €727.9 million in 2020.

Birkenstock’s IPO will follow major IPOs by ARM Holdings and Instacart in recent weeks as capital markets fire up after months of next to no activity.

Joint book runners for the IPO include Goldman Sachs, JP Morgan and Morgan Stanley.

The Horizonte Minerals share price is down 85% since last Friday’s close after the nickel miner said on Monday that it had gotten its capital expenditure figures for the 100%-owned Araguaia Nickel Project wrong and was seeking additional financing.

As a result of the miscalculation, the first production of nickel is being pushed back to Q3 2024 from Q1 2024.

The delay in production will be a major disappointment for investors. However, the biggest concern in the short term is how they will finance the rest of the mine construction.

The feasibility study for the Araguaia Nickel Project attributed a capital cost of $443 million for the first stage of the Araguaia mine, with the second stage to be financed by cashflows from first stage production.

Horizonte said on Monday they now expect capital expenditure to be at least 35% more than first thought. This would represent around $155m.

The need for additional capital will be a bitter pill to swallow for investors who were told earlier this year that Araguaia was on schedule and on budget.

The company has previously financed the mine through debt and newly issued equity, with the lion’s share raised through a senior debt facility.

The worry for investors will be that Horizonte said they are exploring financing options with ‘various financial institutions together with the cornerstone shareholders’. Cornerstone shareholders’ involvement would suggest Horizonte is considering an equity placing that could be highly dilutive for existing shareholders.

With Horizonte’s market now at just £44m, an equity placing could be problematic. The company didn’t issue any further details on financing options, which has added to the uncertainty and can be attributed to a proportion of the share price decline. One would assume they are looking at both debt and equity options.

There is of course value in the works already completed and the resources at Araguaia but how much of this value finds its way to Horizonte shareholders is now nothing more than speculation with little detail on future financing.

This is reflected in the Horizonte Minerals share price and it will require a brave investor to take the view the sell-off is overdone.

Superdry plc has signed an intellectual property joint venture agreement with Reliance Brands Holding UK to accelerate growth in India.

The company has also agreed to sell the intellectual property assets for the Superdry brand and related trademarks in India, Sri Lanka and Bangladesh to the new joint venture for £40m.

Superdry shares surged 30% on the news in early trade on Wednesday.

The deal represents a value not too different to Superdry’s market cap as of the close yesterday and will have a material impact on the company’s cash position.

RBUK, which is owned by Reliance Retail Ventures Limited through its subsidiary Reliance Brands Limited (RBL), will hold a 76% stake in the joint venture. Superdry will retain a 24% share. RBL has been Superdry’s exclusive franchise partner in India since 2012.

After the deal, RBL will continue managing brand operations in the three countries.

RBL oversees a retail empire of over 18,000 stores across India. It offers 50 luxury fashion brands and has a presence in 7,000 towns and cities. The total shopping area covers more than 65 million square feet.

Since partnering with RBL in 2012, Superdry has expanded rapidly across India. With the country’s growing economy and rising middle class, the brand has significant potential. As India’s leading fashion retailer, RBUK is best placed to maximise this opportunity through majority IP ownership.

The deal involves permanently transferring all of Superdry’s brand assets in the three countries to the new joint venture entity. Superdry will invest £9.6 million in the JV using funds from the £40 million IP sale price.

Belluscura shares surged in afternoon trading on Tuesday as the portable oxygen concentrator company released a flurry of announcements related to bolstering its manufacturing capabilities.

Belluscura has recently unveiled two substantial developments in the distribution and sales of their portable oxygen concentrators which could add up to $70m in revenue for Belluscura.

This was increased to $85m today after Belluscura announced further orders for their DISCOV-R™ portable oxygen concentrators. The company said orders now sat around $30m.

Belluscura has inked a royalty agreement with Chinese partners that could be worth around $55m over ten years.

Today’s series of announcements revealed a funding package totalling in the region of £8m to be allocated to scaling up the company’s manufacturing and sales operations in light of a step change in order demand.

The £8m funding package will be beneficial for shareholders as it avoids a large discounted placing that would erode shareholder value through dilution.

The package is comprised of three elements; the acquisition of TMT Acquisitions PLC satisfied by new shares in Belluscura, a £0.6m equity placing at 32p, and the issuing of £2.7m in 10% convertible loan notes.

TMT Acquisitions has £4.7m in cash which Belluscura will receive through the acquisition of the company in return for newly issued Belluscura shares. The price paid by Belluscura represents a 24.7% premium to TMT’s most recent closing price. TMT has no trading activities and the board will step down on the completion of the deal.

Nigel Wray, an existing Belluscura shareholder, will participate in the convertible loan note issue.

Belluscura shares jumped 20% to 36p as of 2.41pm in London.

Tekcapital, a major Belluscura shareholder, saw their shares tick higher in the immediate reaction to the news.

The FTSE 100 was feeling the pressure of higher bond yields on Tuesday as US 10-year treasury yields touched 4.75% amid concerns about the trajectory of interest rates.

The latest bout of concern was sparked by a raft of strong US economic data suggesting the world’s largest economy is taking higher rates in its stride.

“The hangover from strong economic data out in the US is still being felt, with the headache increasing about the likelihood of high interest rates setting in rattling nerves. Better than expected manufacturing indicating a more buoyant US economy is not being taken as good news, but a sign that the bitter central bank medicine will have to keep being administered to bring down inflation to target,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Those hoping interest rates had peaked may be disappointed if this trend continues and inflation remains elevated. The ongoing concerns about interest rates are weighing on markets that are starting to show signs of monetary policy fatigue.

“Stubbornly high US government bond yields are making life harder for equities to press ahead. The US Treasury yield exceeded 4.7% overnight as investors took the view that the US economy is in a decent and resilient shape,” said Russ Mould, investment director at AJ Bell.

“While a robust economy would be positive, it theoretically lowers the chances of the Federal Reserve making interest rate cuts in the near-term or at least fewer cuts than previously expected.”

The FTSE 100 was down 0.3% to 7,488 at the time of writing.

“A risk-off sentiment is growing, and the FTSE 100 is finding it hard to regain its mojo,” Streeter concluded.

In terms of FTSE 100 movers, consumer-facing and highly cyclical sectors received the brunt of the selling on Tuesday. Miners were weaker and were Burberry and JD Sports.

Ocado’s free fall continued as hopes of a bid from Amazon becomes a distant memory. Ocado shares were down 4.5% and were the biggest loser on Tuesday.

There was a distinct risk-off rotation in FTSE 100 stocks with defensive names including GSK, Unilever and Pearson in favour.