The FTSE 100 made a tepid-at-best start to trading on Wednesday, with Shell declining after it forecast a weaker fourth-quarter output performance for its Integrated Gas unit.
The FTSE 100 index opened down just 0.69 of a point at 8,244.59. The FTSE 250 was down 24.85 points, 0.1%, at 20,325.52, and the AIM All-Share was up just 0.18 of a point at 725.46.
The Cboe UK 100 was down 0.1% at 825.45, the Cboe UK 250 also was 0.1% lower at 17,747.70, and the Cboe Small Companies was marginally higher at 15,847.81.
The CAC 40 in Paris was down 0.2%, while the DAX 40 in Frankfurt was 0.1% higher.
The pound was lower at $1.2460 early Wednesday from $1.2498 at the time of the London equities close on Tuesday. The euro fell to $1.0331 from $1.0377. Versus the yen, the dollar was higher at JP¥158.16 from JP¥157.77.
A barrel of Brent firmed to $77.36 from $76.83. Gold faded to $2,650.53 an ounce from $2,654.67.
Rising UK government borrowing costs had grabbed investor focus on Tuesday. The yield on the 30-year gilt stretched beyond 5.24% to its loftiest level since 1998.
The development puts pressure on Chancellor Rachel Reeves, analysts at Lloyds Bank commented. They noted the yield is some 70 basis points above the level used by the Office for Budget Responsibility to calculate debt interest costs at the October budget.
‘Closing at almost 5.25%, the 30-year yield exceeded the October 2023 peak, and the Truss mini-Budget spike of October 2022. Fiscal sustainability questions come to the fore again. Arguably a weighted average yield across the maturity spectrum is more appropriate and this shows yields are already 20bps above the Truss spike of 2022,’ Lloyds said.
‘Even without taking into account adverse movements in other underlying macro variables, this isolated move alone essentially wipes out all of the government’s narrow fiscal headroom of a £9.9 billion balance on the current budget by the horizon date of 2029-30. For the time being the change in gilt yields triggering the latest headline doesn’t stand out versus changes in swaps or versus other government bond markets such as US Treasuries. As such it is hard to say the bond vigilantes forcing the issue on UK fiscal strategy is the dominant market theme.
‘But the possibility that such a dynamic becomes more high profile in the run-up to the OBR spring forecast on 26 March can’t be ruled out if yields keep rising. The chancellor is likely to come under pressure to outline an approach for restoring fiscal headroom.’
Lofty borrowing costs kept a lid on housebuilder shares, a sector exposed to interest rates. Barratt Redrow shares fell 1.6%, while Taylor Wimpey shed 1.1%.
Strong US economic data on Tuesday complicated the picture for the Federal Reserve as it plots the path for interest rates in 2025.
According to the Institute for Supply Management, the services PMI registered 54.1 in December, rising from 52.1 in November, and above the 53.3 consensus forecast cited by FXStreet.
Of note, the prices index registered 64.4 in December, a sharp rise from November’s reading of 58.2, sparking inflation worry.
ISM Chair Steve Miller noted this month’s reading is the first time the index has registered over 60 since January. It was the highest reading since February 2023.
Wednesday’s global economic diary sees minutes from December’s Federal Open Market Committee meeting, and ADP private payrolls figures.
In New York on Tuesday, the Dow Jones Industrial Average ended down 0.4%. The S&P 500 tumbled 1.1% and the Nasdaq Composite shed 1.9%.
Nvidia shares tumbled 6.2% on Tuesday.
XTB analyst Kathleen Brooks commented: ‘The main driver was concern about a lack of detail on the company’s new Blackwell chip during Nvidia CEO Jensen Huang’s speech at the CES conference, the biggest tech conference in the world. Nvidia pulled back sharply after reaching a record high on Monday. This tells us two things: 1, Nvidia is still as volatile a stock as ever, and it does not always move higher in a straight line, and 2, the market does not have a clear driver right now.
‘The factors that are driving the S&P 500 this year have shifted. Momentum and growth had been powerful drivers of the S&P 500’s rally in 2024, they have now reversed, and momentum and growth weighed heavily on the index on Tuesday, with value shares outperforming. It’s too early to know if this is a trend, but it is definitely something to watch.’
In Europe, there is a producer price index reading at 1000 GMT.
Numbers on Tuesday showed consumer price inflation in the eurozone hotted up last month.
According to Eurostat, eurozone headline inflation rose to 2.4% in December from 2.2% in November, with core inflation stabilising at 2.7%. The figures were in line with market expectations.
In London, Shell shares fell 1.8%. It reported that it expects to report a decline in Integrated Gas output for the fourth quarter, weaker trading & optimisation results for the unit, and well write-offs.
The oil major expects to report final-quarter Integrated Gas production between 880,000 to 920,000 barrels of oil equivalent per day, a decline from 941,000 in the third quarter of 2024.
Trading and optimisation results in the unit are ‘expected to be significantly lower’ than in the third quarter. This is driven by the non-cash hit from the expiration of hedging contracts. Fourth-quarter well write-offs of around $300 million are expected in Integrated Gas.
Adjusted earnings pretax and depreciation in Integrated Gas between $1.2 billion and $1.6 billion are expected, compared to $1.4 billion in the third quarter.
In Upstream, earnings between $2.4 billion and $3.1 billion are forecast, compared to $2.7 billion in the third quarter. Upstream exploration well write-offs of around $400 million are expected. In the Marketing division, earnings between $400 million and $800 million are predicted, after it achieved $600 million in the third quarter.
In Chemicals & Products, Shell forecasts an earnings outcome between $800 million and $1.0 billion, compared to $900 million in the third quarter. In the chemicals sub-segment alone, however, it expects a loss.
Flutter Entertainment shares fell 2.0%. It warned US revenue will be weaker than expected, hurt by punter-friendly sports results. The gambling firm said ‘strong US player momentum’ has been offset by ‘very unfavourable US sports results across the remainder of November and in December’.
Flutter said the 2025/25 National Football League season in gridiron has been ‘the most customer friendly since the launch of online sports betting with the highest rate of favourites winning in nearly 20 years’.
At $5.78 billion, US revenue for 2024 is now expected to be some $370 million lower than its previous guidance midpoint. Its previous US revenue guidance range was $6.05 billion to $6.25 billion. US adjusted earnings before interest, tax, depreciation and amortisation are expected to be around $205 million lower than the previous guidance midpoint at around $505 million. Its previous guidance range was between $670 million and $750 million.
Away from the US, the picture is more favourable. In the UK & Ireland segment, favourable English Premier League results mean revenue and adjusted Ebitda for 2024 will be around 1% and 2% higher than the mid-points of previous guidance. Flutter is scheduled to release fourth-quarter earnings on March 4.
In China, the Shanghai Composite ended marginally after being in the red for most of the trading day. The Hang Seng Index in Hong Kong was down 0.9%. In Tokyo, the Nikkei 225 shed 0.3%, while in Sydney, the S&P/ASX 200 added 0.8%.
ActivTrades analyst Anderson Alves commented: ‘Looking ahead, attention will focus on any trade policy speculation or concrete plans from Trump targeting Canada, Europe, Mexico, and China, as highlighted during his election campaign.’
Donald Trump threatened military action to secure the Panama Canal and economic force against neighbouring Canada in meandering remarks Tuesday that drew firm and frosty responses from the two US allies.
He refused to rule out using military force to seize Greenland and the Panama Canal – both of which he has long coveted – criticising recently deceased Jimmy Carter for permitting a handover to local control of the Central American waterway when he was president.
Asked if he would use military force to bring Canada to heel, the incoming president said ‘no – economic force,’ but added that eliminating the ‘artificially drawn’ US-Canada border would be a boon to national security.
There is not a ‘snowball’s chance in hell’ that Canada will merge with the US, outgoing Prime Minister Justin Trudeau said Tuesday, while his foreign minister added the country will ‘never back down’ from threats by Trump.
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