The FTSE 100 edged higher on Tuesday as investors digested government defence spending plans in the UK and cooling inflation data in Europe.
The FTSE 100 closed up 12.90 points, 0.1%, at 10,497.12.
The FTSE 250 ended slightly lower at 23,013.45, and the Aim All-Share rose 2.06 points, 0.3%, at 772.17.
In European equity markets on Tuesday, the Cac 40 in Paris ended up 0.4%, and the Dax 40 jumped 1.5% in Frankfurt.
Inflation slowed in the eurozone’s two largest economies in June, data showed, boosting the likelihood of the European Central Bank keeping interest rates on hold at its next meeting.
In Germany, annual inflation fell to 2.3%, down from 2.6% in May, according to provisional data from federal statistics agency Destatis.
In France, consumer price rises slowed to 1.8%, down from 2.4%, statistics authority Insee said, as costs of petroleum products eased.
Inflation figures for the whole of the euro area will be reported on Wednesday.
The pound traded at 1.3263 dollars on Tuesday afternoon, higher from 1.3247 dollars on Monday.
Against the euro, sterling firmed to 1.1614 euro from 1.1597 euro on Monday.
The euro traded lower against the greenback, at 1.1419 dollars on Tuesday against 1.1422 dollars on Monday.
Against the yen, the dollar was trading at 162.60 yen, up from 161.93 yen on Monday, a 40-year low.
ING said the Bank of Japan is widely expected to intervene over the coming days and weeks.
“Japanese officials have made it clear that the weak yen poses a threat to import costs and Japan’s cost of living crisis, which has been a key topic for the electorate.
“Currently, those cost of living concerns are being addressed through government subsidies, which themselves bring some concern for the bond market.”
“In terms of immediate timing, we suspect the BoJ might hold off ahead of possible dollar-positive event risks such as remarks tomorrow from Federal Reserve chair Kevin Warsh and Thursday’s release of the June US jobs report.
“That makes Friday’s US July 4th holiday a possible window for intervention,” ING added.
In New York, the Dow Jones Industrial Average was up 0.1%, the S&P 500 rose 0.5%, and the Nasdaq Composite was 1.1% higher.
The US 10-year Treasury yield traded at 4.40% on Tuesday, widening from 4.39% on Monday.
The US 30-year Treasury yield stretched to 4.89% from 4.86%.
Back in the UK, data from the Office for National Statistics showed real gross domestic product increased by an unrevised 0.6% in the first quarter.
Meanwhile, Prime Minister Keir Starmer announced plans to spend almost GBP300 billion over the next four years to modernise the nation’s armed forces.
More drones, uncrewed vehicles and an upgrade to the UK’s nuclear deterrent form part of outgoing Prime Minister Sir Keir Starmer’s long-awaited 10-year defence investment plan.
The proposals see an extra £15 billion being pumped into defence spending up to 2030, which Sir Keir called a “huge historic shift for our nation and a legacy in which I take pride”.
Defence contractors Babcock International and BAE Systems rose 3.3% and 2.0% respectively, while QinetiQ climbed 2.4%.
Dan Coatsworth, head of markets at AJ Bell, said the extra funding “fired up” shares in defence contractors, giving a “leg-up to a sector that had lost momentum following a storming run in recent years”.
“The big unknown is how long the new rally will last,” he added.
“Investors had recently grown tired of the ‘more defence spending is coming’ messaging given it is old news to the market.
“Shares in the sector have already priced in a stronger earnings pipeline, with valuations starting to look toppy for many key stocks.”
Brent crude for August delivery traded higher at 73.04 dollars a barrel on Tuesday, up from 72.85 dollars on Monday.
David Morrison at Trade Nation noted that Brent has flattened out over the past week.
“Having pulled back dramatically since mid-May, oil has been unable to make further downside progress,” he said.
“Yet buying interest hasn’t been sufficient to trigger any kind of rebound so far.
“This is quite surprising given the back-and-forth between the US and Iran with negotiations showing remarkably little progress over the past month.
“Traders seem convinced that the war is close to ending.”
Gold traded at 4,032.83 dollars an ounce on Tuesday, up from 4,023.68 dollars on Monday.
On the FTSE 100, Sainsbury rose 1.3% after a better-than-expected quarterly sales update.
The London-based food retailer said total retail sales, excluding fuel, rose 2.7% on-year in the 16 weeks to June 20 to £9.15 billion from £8.92 billion the year prior, ahead of 2.4% growth forecast by company-compiled consensus.
Like-for-like sales, excluding fuel, were up 2.1%, ahead of 1.9% consensus.
“We have had an encouraging start to the year,” Sainsbury said in a statement, although it cautioned the impact of the conflict in the Middle East “remains uncertain”.
Shell shares were up 1.1% after Bloomberg reported that it is nearing the sale of its fuel stations in South Africa to a unit of Abu Dhabi National Oil for around £1 billion.
Shell and the retail arm of Abu Dhabi National Oil are preparing to announce a deal in the coming days, Bloomberg reported.
The deal would give Adnoc control over 600 retail fuel outlets in South Africa, or around 10% of the market.
Talks are advanced, although no final agreement has been reached, Bloomberg added.
The biggest risers on the FTSE 100 were Polar Capital Technology Trust, up 27.5p at 713.0p, Babcock International, up 30.8p at 951.8p, Scottish Mortgage Investment Trust, up 45.5p at 1,470.5p, Melrose Industries, up 12.9p at 474.9p and St James’s Place, up 30.5p at 1,211.5p.
The biggest fallers on the FTSE 100 were Entain, down 32.4p at 559.0p, Smith & Nephew, down 53.0p at 1,090.5p, Vodafone, down 3.85p at 99.6p, BT, down 6.1p at 190.1p and Burberry, down 33.0p at 1,062.0p.
Wednesday’s global economic calendar has a slew of manufacturing PMI reports, eurozone CPI data and the ADP private payroll report in the US.
Wednesday’s local corporate calendar has a trading statement from Primark owner Associated British Foods and retailer Topps Tiles.
– Contributed by Alliance News
