Market snapshot: coming to the defence of the UK market

US markets were subject to marginal gains overnight, carrying on some of this week’s positive momentum, but remain vulnerable to any new White House pronouncements.

The small rises came despite another survey which showed that consumer confidence continues to ebb away. The lowest reading for 12 years came amid the inevitable concerns around business, job and income prospects as tariff threats take hold.

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Even so, this soft leading indicator is in contrast to the hard lagging indicators of late, showing that there is more anxiety around where the economy may end up, as opposed to where it actually is at the moment. Further colour will come later in the week as GDP and inflation figures are released.

For the time being, the so-called “Liberation Day” on 2 April [when Trump will confirm US tariff policy] cannot come quickly enough for investors, who at least may get some certainty on the breadth and depth of global tariffs. However widespread the aggression may be, businesses, investors and consumers will at least have something on which to base future investment and spending decisions.

This week’s tentative gains have been based on hope rather than belief that the tariff actions could be less damaging than expected and, in the meantime, it remains to be seen whether trade negotiations between the US and China will yield anything positive.

Even so, the current skittishness among investors has provided a headwind for the main indices after a couple of years of solid gains. In the year to date, the Dow Jones is all but flat, having posted a gain of just 0.1%, while the benchmark S&P500 and tech-focused Nasdaq indices remain in the red, with losses of 1.8% and 5.4% respectively.

• The case for investing in this part of US stock market
• Stockwatch: are these the next banks being re-rated?
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Meanwhile, and despite having largely dodged any tariff bullets thus far, the UK economy has its own list of issues to contend with. A brief respite to the tepid outlook came as inflation was lower than expected in February at 2.8%, below both estimates and the 3% recorded in January.

Nonetheless, the Bank of England is anticipating another temporary spike later this year to around 3.7%, largely driven by energy prices, before settling back and at least lending part of its task more clarity as it ponders the next move on interest rates.

The issue of growth and where it could be coming from is likely to be of particular interest as the Spring Statement is delivered at lunchtime. Despite being heralded as a Budget for growth, the impact so far of last year’s measures have seemingly had the reverse effect, as businesses pare back investment and hiring in light of the ongoing uncertainty, which has been exacerbated by the impending rise in costs for employers. There is expected to be little to lighten the mood during the statement, which comes alongside an estimate from the Office for Budget Responsibility which is slated to slash its own expectations on economic growth.

As a proxy for the state of the nation, the FTSE250 has suffered given the current levels of pessimism around the domestic economy and has fallen by 2.7% in the year to date, erasing the positive gains of the last couple of months. This comes despite some elevated Merger and Acquisition activity and a general scrutiny of the UK for investment opportunities by overseas investors, who are beginning to appreciate the relative under valuations which are to be found in abundance across the market as a whole. 

• New mining sector videos: five stocks, gold, China & Trump
• Important last-minute checklist for tax year end 2025
• ISA ideas: short-term plays and long-term holds

As such, and given its higher prominence and defensive nature, the premier index has had a rather more rewarding time, with the FTSE100 now ahead by 6.2% so far this year.

The defence sector continues to command attention, especially given that an increase in general spending is expected to be announced later. In addition Babcock International Group (LSE:BAB), which was promoted to the FTSE100 this week, announced a five-year contract extension worth around £1 billion with the Ministry of Defence, propelling its shares higher in early trade to stand 47% ahead so far this year.

It may be an unfortunate sign of the times, but heightened risks need to be dealt with, and the rises of 36% and 37% for the likes of BAE Systems (LSE:BA.) and Rolls-Royce Holdings (LSE:RR.) over the last three months are emblematic of growing geopolitical tensions.