MARKET REPORT: Blue-chip stocks turn red amid turmoil in bond markets

Turmoil in bond markets sparked heavy selling in UK shares yesterday as investors, worried about the health of the economy under the Labor government, fled for the hills.

With UK bond yields rising and the pound sinking, the FTSE 100 rose 0.1 per cent, or 5.75 points, to 8,251.03, while the more domestically focused FTSE 250 fell 2 percent, or 398.1 points, to 19,952.24.

Gone are post-election hopes that a period of political stability would help revive London’s ailing stock market.

Instead, investors see stagflation, as higher taxes, spending, borrowing and debt – part of a decisive shift from the private to the public sector – cripple the economy.

Donald Trump did little to help. Immediately following his suggestion that he might use military force to seize the Panama Canal and Greenland, the president-elect was said to be willing to declare an economic emergency in the United States to justify new tariffs.

“When you’re talking about an economy like the United States, using language like that is disturbing,” said Danni Hewson, head of financial analysis at AJ Bell.

‘Tariffs will cause damage to Europe as well as the global economy. “It will cause trade friction and it will be inflationary, but also potentially inflationary across Europe.”

It was not all doom and gloom in the London market, however, but gains in big defense and banking stocks were more than offset by selling elsewhere.

BAE Systems rose 3.1 percent, or 36 pence, to 1,190 pence after Trump called for greater defense spending by NATO allies, while Rolls-Royce rose 0.2 percent, or 1.4p, to 578p.

Among banking stocks, HSBC rose 2 percent, or 15.2 pence, to 791.2 pence, its highest level since 2008, after Bank of America gave it a “buy” rating.

And the London Stock Exchange Group hit a new record – up 1.7 per cent, or 190 pence, to 11,615 pence – after Bank of America named it among its ’25 stocks for 2025′ .

But the mood was gloomy, with Calastone figures showing a further £9.6bn was withdrawn from UK equity funds last year, taking outflows to £45bn since 2015.

“UK equity valuations are clearly cheap, but investors are capitulating, apparently giving up hope of a long-awaited rerating,” said Calastone head of global markets Edward Glyn.

Fund manager Ashmore fell 7.6 per cent, or 11.9p, to 143.9p after analysts at Jefferies downgraded the stock.

Flooring specialist Topps Tiles rose 1.6 per cent, or 0.6 pence, to 37.8 pence after it said chief executive Rob Parker would step down after 18 years and reported a 4.6 per cent rise in first quarter sales.

Investor MS Galleon, who owns a 29.9 percent stake, welcomed the change and called for a leadership overhaul. Piotr Lipko, head of MS Galleon, said it was “a positive first step.”

Pots, pans, kettles and knife maker ProCook reported an 11.2 per cent rise in third-quarter revenue to £25.6 million, boosted by Black Friday and Christmas sales, and was up 10, 4 per cent, or 4p, to 42.5p.