London stocks extended their losses on Wednesday, marking the third consecutive day in the red for the FTSE 100. The index closed down 32.83 points, or 0.3%, at 10,756.45. This broad market weakness was driven by a combination of factors including surging gilt yields, persistent high oil prices, and renewed geopolitical tensions between the US and Iran. Mid-cap companies faced heavier selling pressure, with the FTSE 250 dropping 197.23 points, or 0.8%, to 24,324.06, and the AIM all-share falling 6.05 points, or 0.8%, to 790.01.
Oil prices remained a significant concern, with Brent crude holding near $95 a barrel, reaching its highest level since mid-July. This surge was attributed to renewed hostilities between the US and Iran, particularly US military strikes against Iranian targets around the Strait of Hormuz in retaliation for alleged mine-laying and an attack on a US base. President Donald Trump warned of further responses. Elevated energy costs are fueling fears that inflation will remain high, forcing central banks to maintain higher interest rates. The financial markets are currently grappling with a "cocktail of worries" including potential interest rate hikes, geopolitical instability, and concerns about revised economic growth expectations.
The bond market experienced a rout, with UK borrowing costs hitting their highest levels since the 2008 financial crisis. The yield on the UK’s 10-year government bond climbed to approximately 5.27%, and the 30-year gilt yield reached 5.87%. Similarly, the US 10-year Treasury yield was quoted at 4.79%, and the US 30-year Treasury yield was 5.27%. This deepening global bond sell-off reflects investor concerns about inflation and government borrowing, creating a "deeply uncomfortable" fiscal position for the UK, as noted by Kathleen Brooks, research director at XTB.
Specific sectors and companies also felt the pressure. Technology, investment, mining, and building stocks were among the hardest hit. Computacenter dropped 3.4%, Experian declined approximately 2.2%, and Sage fell around 2%. In contrast, energy stocks provided some support due to rising crude prices. InterContinental Hotels Group was a notable gainer, up 3.1%, after UBS upgraded its rating to 'buy'. NatWest also saw a 0.6% increase following an upgrade from Morgan Stanley. However, Pearson lost 2.2% after a downgrade by Citigroup.
