FTSE 100 faces pressure after strong November
The FTSE 100 struggled in early trading, taking its cue from losses overnight in the Nikkei 225 on hints that the Bank of Japan was leaning towards a December rate hike.
The index has been on a strong run, achieving five consecutive months of gains – its best monthly streak since 2021. In November, the FTSE 100 managed to eke out another small gain of less than 0.1% despite global stocks falling marginally.
November also saw the index hit a record level and come tantalisingly close to reaching 10,000 points for the first time. However, that milestone has slipped further away with the index now around 2% below its all-time high.
It’s been the FTSE 100’s stable of defensive stocks with predictable revenue streams that helped push the index higher. Precious metals miners Fresnillo and Endeavour, along with BAT and AstraZeneca, were among the biggest gainers over the past month.
Defensive stocks prop up Britain’s blue-chip index
The FTSE 100’s recent outperformance has been driven by its defensive characteristics. The index’s weighting towards consumer staples, pharmaceuticals and commodity producers has provided support during uncertain times.
Precious metals miners have been particularly strong contributors. With gold prices remaining elevated, companies like Fresnillo have delivered solid gains that have helped offset weakness elsewhere in the market.
Risk-off mood grips European markets
The pan-European STOXX 600 dropped 0.4% to 573.88 points by mid-morning trading, reflecting the cautious mood spreading across the continent. Major regional bourses followed suit, with Germany’s DAX and France’s CAC 40 both falling 0.5%.
The pullback comes after November’s strong finish helped ease concerns about an AI bubble. However, the lack of fresh positive catalysts has left traders looking for new reasons to push markets higher.
Even crypto markets joined the sell-off. Bitcoin slumped 4.7% to $86,215, a sharp reminder that digital assets remain vulnerable to broader risk-off moves. The cryptocurrency’s decline added to the cautious mood permeating trading floors.
Asian weakness sets negative tone
Asian markets offered little comfort overnight, with widespread declines across the region setting a negative tone for European trading. Tokyo’s Nikkei 225 fell 1.9% after weaker-than-expected corporate investment figures dampened sentiment.
Japan’s factory PMI managed only 48.7 in November, remaining in contraction territory and highlighting ongoing weakness in manufacturing activity. This adds to concerns about the health of Japan’s export-dependent economy.
China’s factory activity shrank for an eighth consecutive month, underscoring persistent challenges facing the world’s second-largest economy. However, Hong Kong’s Hang Seng bucked the trend, rising 0.8% despite Meituan slipping after reporting a quarterly net loss.
The Shanghai Composite gained 0.4%, whilst South Korea’s Kospi barely moved, Australia dipped 0.3%, Taiwan lost 0.5% and India’s Sensex edged up 0.3%. Across the region, November PMIs were weak, though export numbers have improved in recent months according to Capital Economics’ Shivaan Tandon.
US futures point to further declines
US futures weren’t offering much cheer either, with the S&P 500 down nearly 0.7% and the Dow off 0.4% in early Monday trading. This suggests Wall Street may extend last week’s weakness when markets open later.
The negative sentiment in US futures reflects concerns about valuations after a strong year for American equities. Traders appear to be reassessing positions ahead of key economic data releases this week.
Oil provided one of the few bright spots, rising more than $1 a barrel in early trading. The energy sector’s strength offers some support to commodity-focused indices like the FTSE 100, which has significant exposure to oil majors.
Industrial and defence stocks drag European indices
The industrial sector bore the brunt of Monday’s selling pressure across Europe, falling 1.3% to become the biggest drag on the broader STOXX 600. This underperformance highlights ongoing concerns about European manufacturing and economic growth.
Airbus shares fell 2.1% after the planemaker announced it had recalled and ordered immediate repairs to 6,000 jets, representing more than half the worldwide fleet. The issue stems from a software problem requiring urgent attention, though initial reports suggest updates were completed over the weekend without major disruptions.
Defence stocks suffered notable declines, with the broader defence index losing 2.3%. Hensoldt, Rheinmetall and Leonardo each dropped over 3% as investors reassessed the sector’s outlook following news of “productive” talks between U.S. and Ukrainian officials on a potential Russia-Ukraine peace deal.
While peace negotiations remain at early stages, the prospect of a resolution has prompted traders to take profits in defence stocks that rallied strongly during the conflict. However, experienced traders know that geopolitical situations can shift rapidly.
Markets look ahead to key data releases
With November’s rally now behind them, traders are seeking fresh catalysts to drive markets higher. This week’s focus centres on economic data releases and early holiday spending signals from Black Friday and Cyber Monday.
Economic data will be crucial in shaping expectations for central bank policy. Investors remain particularly sensitive to inflation readings and any indicators that might influence the Bank of England’s interest rate decisions.
Consumer spending data from the holiday shopping period could provide valuable insights into the health of household finances. Strong spending would support the case for economic resilience, while weak figures might raise recession concerns.
