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Welcome to the multi-award-winning Money Distilled newsletter. I’m John Stepek. Every week day I look at the biggest stories in markets and economics, and explain what it all means for your money.
FTSE 10k is here at last! What next?
Break out the champagne and your FTSE 10k bowler hats!
The UK’s headline index, the FTSE 100, has managed not only to break the 10,000 milestone on an intraday basis (which it did on Friday), but also close above it (achieved yesterday), and has thus far remained above the big round number for the entirety of this chilly Tuesday morning.
What does this tell us about the UK economy? Well, typically the answer is “very little”. The FTSE 100 is the UK’s multinational index, with the majority of corporate revenues denominated in US dollars. Think big oil companies, big mining companies, big drug companies, big banks, and big consumer goods producers.
That said, today’s crop of gainers does skew quite nicely to the UK. Defense and defense-adjacent stocks are doing well in the wake of US President Donald Trump’s decision to shake up ye olde rules-based international order in Venezuela.
But other top 10 risers today include high street retailer Next Plc and supermarkets J Sainsbury Plc and Tesco Plc, whose most significant exposure is to the health of the UK consumer rather than global geopolitics or commodity prices.
I always think it’s worth paying close attention to the Christmas trading updates. Official surveys and releases from the Office for National Statistics are important, of course they are. But companies are right at the sharp end, and if the doughty UK consumer is actually running into trouble, that’s where you’ll see it happening first.
Judging by today’s batch, things are basically OK. Fashion and homeware group Next has a long-term habit of underpromising and overdelivering (and somehow still surprising the market every time it does so), and today’s update was no exception.
The retailer delivered its fifth profit upgrade of the current financial year, and said that full-price UK sales had risen by 5.9% in the nine weeks to December 27. This growth rate beat the company’s own forecasts.
The outlook expressed its traditional caution — this year was good because the summer was warm and there was “competitor disruption” (a coy reference to the cyber attack on Marks & Spencer Group Plc), among other things. There’s also concern about what happens with UK unemployment. But it’s all within the bounds of “normal” worries.
Sainsbury’s and Tesco, meanwhile, are likely up today because market research group Worldpanel by Numerator reckons both gained market share in the lead up to Christmas. As a whole, UK supermarket sales were up 3.8% on last year, to a record £13.8 billion, according to the same report.
Britain’s Upside Potential
All in, despite perfectly reasonable concerns about the cost of living, a tax squeeze, and pressures on the labour market, the UK consumer is not showing any obvious signs of flagging.
This may seem odd, given how downbeat the atmosphere seems to be. But one thing I’ve learned over the years of following consumer data and the economy generally is that when people have money, they spend it. They might not be happy about it, and they might be worried on a slightly abstract level. But if the money is coming in, it’ll keep going out too.
The gloomy mood is, I suspect, in large part because every time you go to the supermarket, you get a very visceral reminder of how much prices have gone up in the last few years. But all the same, people are still spending.
The other positive the UK has going for it right now is that there is probably still a bit more room for official interest rates to come down. Other parts of the world are holding or even hiking rates, but the Bank of England remains on the downward slope.
What might all this mean for UK markets?
In the past year (from January 6 last year to today), the FTSE 100 has returned a bit more than 26%, in sterling terms, with dividends reinvested. By contrast, the FTSE 250 has managed around 13.5%. In a typical year, you’d be a pretty happy bunny with 13.5%, but given that you could’ve pretty much doubled that by owning “boring” large caps, it’s not so great.
(By the way, for those who still believe that the US is the “only game in town”, the S&P 500 did 8.2% over the same period in sterling terms, while the Nasdaq Composite turned in 9.7%. The weakening of the US dollar versus the pound did do a good bit of the heavy lifting, but even in local currency terms, the FTSE 100 still comes out on top.)
Might this be the year in which the mid-caps and small-caps play catch-up? If you think the UK’s domestic economy might do better than expected this year — and it might, it’s still not a high bar — then spending some time looking into the FTSE 250 and smaller stocks could pay off.
The two big threats to this outcome — as I see it — are the jobs market, and inflation. A sharper increase in unemployment would hit consumer spending, and thus the wider economy, and potentially create a bit of a vicious cycle.
As for inflation, if it ends up being stickier than anyone expects right now, then that could keep interest rates higher, squeezing household finances and making everyone even more irritable. This is why I think I’ll be keeping a close eye on the UK’s “misery index” (the combined unemployment and inflation rate) in the coming months.
I suspect we will also hear a lot of political noise this year. If it looks as though policy is set to get even more damaging as government infighting continues, we can fret about it at the time, but there’s little point in second-guessing any leadership battle (or lack of one). This is why you diversify — regardless of how appealing any one market might look.
Send any feedback to [email protected] and I’ll print the best. Or ping any questions to [email protected].
What I’ve been reading this morning
* Here’s a list of 10 surprises that could affect investors in 2026, according to Bloomberg Opinion writer Nir Kaissar.* How rapidly is Argentina changing under President Javier Milei? Take a look at the salmon farming business, says Juan Pablo Spinetto.* Why is the British housing market in such a mess? You have to go back almost a century to find one of the biggest culprits, says Matthew Brooker.
Mid-day markets
Looking at wider markets — the FTSE 100 is up 0.9% at around 10,090. The FTSE 250 is up 0.3% at 22,670. The 10-year gilt yield is sitting at 4.48%, lower on the day. The German 10-year is also lower at 2.84% as is the French 10-year at 3.54%.
Gold is up 0.3% at $4,460 an ounce, and oil (Brent crude) is up about 0.4% to $62.00 a barrel. Bitcoin is down 0.3% at $93,830 per coin, while Ethereum is flat at $3,240. The pound is down 0.2% against the US dollar at $1.351, and down 0.1% against the euro at €1.154.
Follow UK Markets Today for up-to-the-minute news and analysis that move markets.
Quote of the day
“It’s a simple fact that if retailers can’t make money, they risk having to close – and jobs across the country are lost.”
Modella Capital
Investment firm
It’s not all glass half-full for the UK high street – a spokesperson for Modella, the owner of retailer Claire’s Accessories, blamed a tough environment for the chain entering insolvency proceedings, along with discount department store group The Original Factory Shop.
Putting a number on… a fiscal coin toss
50%
The odds placed by JPMorgan analysts on France, Belgium or Austria having their sovereign credit rating downgraded by at least one of the major ratings agency this year.
Before you go…
If you haven’t yet subscribed to the Merryn Talks Money podcast, I highly recommend you do so. Apple folk can subscribe here ; fellow Android users, you could go with Spotify , or just the podcast app of your choice.
The main stories to watch out for on Wednesday include:
* It’s a quiet one for corporate news, while in economic news, we get the latest snapshot of UK construction sector activity via the S&P Global PMI survey. There’s also euro-zone inflation, US durable goods orders, and Japanese wages data.
We’re in a world where politics and political interventions matter far more to markets than they did in the pre-2008 era of consensus, globalisation, and voter apathy. So be sure to read my colleague Allegra Stratton’s daily newsletter, The Readout , to keep up.
And if you want up-to-the-minute news commentary with the odd joke flung in, follow me on X / Twitter .
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