(Bloomberg) -- The UK’s domestically-focused stock index recovered after falling to the lowest since April on concerns about the fiscal deficit and higher inflation. The pan-European benchmark gained as investors monitored the outlook for US trade policy.
The mid-cap FTSE 250 climbed 0.3% by the close after earlier sinking 1.1%. The index had previously fallen for two straight sessions in a rout that extended to other UK assets, with sterling dropping to the lowest in more than a year and gilts falling further.
Some market strategists have drawn comparisons between the latest turmoil and the Liz Truss mini-budget debacle of 2022, but Polar Capital fund manager Georgina Hamilton said the move was driven mainly by the selloff in the US bond market, meaning it wasn’t “a local market problem.”
“With Truss, the differentials in the UK and the rest of the world spiked up. That’s not what’s happening here,” she said.
The Stoxx Europe 600 Index gained 0.4%, led by miners and financial services stocks. Autos fell after China concluded its probe of the European Union’s Foreign Subsidies Regulation, saying it’s a barrier to trade and investment and paving the way for possible retaliation.
Europe’s equity benchmark has been caught up in rising global volatility as investors brace for the prospect of higher US inflation and potential tariffs. Regional sectors including energy, autos and luxury — which have a big weight in the benchmark indexes — have lost ground amid the trade uncertainty.
Aneeka Gupta, director of macroeconomic research at WisdomTree, said the tariff concerns were likely to remain “front and center.”
“Until now, the market was pricing in a good Trump with an easier tariff narrative,” Gupta said. “We’re now seeing bigger threats coming to the fore, and no one really is being spared at this particular point in time. The next big catalyst will be the fourth-quarter earnings season.”
Tesco Plc shares were muted with the broader UK market, even as its domestic market share reached the highest since 2016, with strong food sales driving volume growth at Britain’s biggest grocer. Marks & Spencer Group Plc also dropped. While trading was ahead of analyst expectations, the company said in a statement that the outlook for economic growth was “uncertain” and that it faces higher costs from tax increases.
For more on equity markets:
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--With assistance from Michael Msika.
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