London midday: Stocks stay down, borrowing costs surge as Starmer refuses to resign

(Sharecast News) - London stocks were still down by midday on Tuesday, while borrowing costs surged after UK Prime Minister Keir Starmer said he would not quit despite growing calls for his resignation, and as hopes of a peace deal between the US and Iran faded.

The FTSE 100 was down 0.3% at 10,236.80, off earlier lows, with sterling 0.5% lower against the dollar at 1.3540 and Brent crude up 3.4% at $107.70 a barrel.

Borrowing costs shot up, with gilt yields hitting their highest level since 2008 amid the political turmoil, after Starmer effectively laid down a challenge to potential rivals to unseat him. Despite calls from nearly 80 MPs, Starmer said at a Cabinet meeting in Downing Street that he would not resign and that the process to challenge a leader had not been triggered.

Neil Wilson, UK investor strategist at Saxo Markets, said: "Having risen about 10bps yesterday this morning the 10yr gilt yield jumped a further 12bps to clear 5.10% at the open as investors ditched UK bonds. The 30yr yield also rose 13bps to hit a fresh 28-year high above 5.8%. I can't believe this won't be broken.

"We could see a blowout in longer-dated gilts if this turns into a dogfight - political, fiscal and inflationary risks will rise. Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier."

Wilson added that the bond market may eventually enforce fiscal discipline on any new leadership, however this would not come without first a lurch higher in yields and potential dislocations.

"Ultimately the outlook for inflation and gilt yields will be dependent on the outcome of the situation in the Middle East and the persistence of the energy shock, as well as the reaction function of the Bank of England to higher prices, as well as the fiscal and political outlook."

More broadly, sentiment was hit after US president Donald Trump told reporters at the White House that the ceasefire with Iran was on "massive life support" and that he was considering a possible resumption of military action and a renewed naval mission in the Strait of Hormuz.

Susannah Streeter, chief investment strategist at Wealth Club, said: "Both sides have dismissed each other's proposals and there are fears the stalemate could escalate again. It's becoming clear that higher energy prices are here to stay for many months, potentially into next year.

"Even if the chokehold on the Strait of Hormuz is released, bruised supply chains and broken energy infrastructure will take many months, if not years, to heal."

Looking to the rest of the day, investors will turn their attention to the US consumer price index for April at 1330 BST, which is expected to show core inflation accelerating to 2.7% from 2.6% in March, and a bigger jump in headline prices from 3.3% to 3.7%, which includes energy costs.

"The risks are skewed to a hotter-than-expected increase in prices, and while headline numbers may not move the dial, a higher-than-forecast core number could at least put a temporary brake on market optimism," said Derren Nathan, head of equity research at Hargreaves Lansdown.

In equity markets, banks were under the cosh, with Barclays, Lloyds and NatWest among the worst performers.

Vodafone lost ground despite saying it swung to a full-year pre-tax profit, while Wickes slumped as it said like-for-like revenue dipped 0.1% in the 17 weeks to 25 April, as DIY sales were hit by poor weather.

Trustpilot was knocked lower by a downgrade to 'equalweight' from 'overweight' at Morgan Stanley.

On the upside, Intertek surged as Swedish private equity firm EQT lifted its takeover approach for the inspection, product testing and certification group to £60 per share from £58.

Imperial Brands edged up as the tobacco company backed its full-year outlook and posted an uptick in first-half revenues, but warned that if the conflict in the Middle East persists, it could have a more meaningful impact on costs and consumer demand.

Bakery chain Greggs rallied as it held annual guidance and said like-for-like sales in the first 19 weeks of the year had improved against what remained a challenging market hit by weak consumer confidence and the Iran war.

Market Movers

FTSE 100 (UKX) 10,236.80 -0.32%

FTSE 250 (MCX) 22,570.72 -1.04%

techMARK (TASX) 5,861.19 -0.90%

FTSE 100 - Risers

Intertek Group (ITRK) 5,240.00p 5.22%

London Stock Exchange Group (LSEG) 9,238.00p 2.44%

British American Tobacco (BATS) 4,485.00p 2.42%

Compass Group 11 (CPG) 30.79p 2.19%

BP (BP.) 549.70p 1.99%

Unilever (ULVR) 4,252.00p 1.55%

Shell (SHEL) 3,171.00p 1.41%

Coca-Cola Europacific Partners (DI) (CCEP) 6,895.00p 1.40%

Diageo (DGE) 1,516.00p 1.20%

GSK (GSK) 1,865.00p 1.11%

FTSE 100 - Fallers

Vodafone Group (VOD) 114.20p -5.15%

Entain (ENT) 504.00p -4.29%

Airtel Africa (AAF) 404.00p -3.90%

Barclays (BARC) 414.25p -3.46%

Lloyds Banking Group (LLOY) 95.08p -3.25%

NATWEST GROUP (NWG) 563.00p -3.03%

Flutter Entertainment (DI) (FLTR) 6,822.00p -2.68%

3i Group (III) 2,449.00p -2.66%

St James's Place (STJ) 1,177.00p -2.44%

BT Group (BT.A) 233.60p -2.42%

FTSE 250 - Risers

Greggs (GRG) 1,601.00p 5.32%

Harbour Energy (HBR) 288.40p 2.27%

Diversified Energy Company (DI) (DEC) 1,176.00p 2.26%

Ithaca Energy (ITH) 275.60p 2.07%

Man Group (EMG) 274.40p 1.63%

Bytes Technology Group (BYIT) 323.00p 1.57%

Tate & Lyle (TATE) 366.60p 1.33%

International Workplace Group (IWG) 190.60p 1.22%

Energean (ENOG) 857.50p 1.06%

CVS Group (CVSG) 1,130.00p 0.98%

FTSE 250 - Fallers

Wickes Group (WIX) 178.00p -11.82%

Trustpilot Group (TRST) 242.80p -6.97%

Trainline (TRN) 206.40p -4.88%

WH Smith (SMWH) 466.40p -4.82%

Moonpig Group (MOON) 206.00p -4.72%

Kainos Group (KNOS) 772.50p -4.69%

Ocado Group (OCDO) 187.90p -3.99%

WPP (WPP) 259.20p -3.85%

4Imprint Group (FOUR) 3,606.00p -3.53%

TBC Bank Group (TBCG) 4,456.00p -3.42%