FTSE benefits from return to ‘old world’

Markets have spent much of recent weeks in a holding pattern as positive developments collide with reasons for caution, creating a more complicated backdrop for both corporate earnings and economic growth. Energy remains the most geopolitically sensitive corner of global markets, with tensions involving Iran and developments in Venezuela keeping oil prices elevated. At the same time, companies exposed to the AI boom are under mounting scrutiny over capital‑expenditure commitments, as investors increasingly question how quickly such heavy outlays will translate into returns. S&P Global Ratings recently estimated that hyperscaler AI spending could exceed $700bn in 2026, implying more than 60% year‑on‑year growth driven by vast data‑centre and infrastructure build‑outs.

This backdrop has provided a tailwind for the UK equity market. With relatively little exposure to the high‑spending US technology giants and a heavier weighting in energy, mining and banks, the FTSE 100 has been a beneficiary of sector rotation. So far in 2026, its performance has been beaten only by Japan’s Nikkei among major developed‑market indices.

The FTSE 100 was up 2.3% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 1.0% ahead.

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Economics 

US economic data has generally surprised to the upside, complicating the Federal Reserve’s task as it weighs the timing of interest‑rate cuts. The labour market remains firm, with new claims for unemployment benefits falling sharply to 206,000, far below expectations, while business activity showed renewed momentum. The Philadelphia Fed Manufacturing Index jumped to 16.3, a five‑month high, and earlier releases revealed stronger‑than‑expected durable goods orders and industrial production – evidence that the US economy continues to show resilience rather than the slowdown many had anticipated. Manufacturing, long stuck in the doldrums, appears to be finding its footing again.

Together, these data points lower the likelihood of near‑term rate cuts. The minutes from the Fed’s January meeting reinforced this message: policymakers are split, but the overall tone remains cautious. Rates were held at 3.50–3.75%, and several officials argued that cuts should remain on pause until inflation falls more convincingly. Some even warned that renewed rate increases may be necessary if price pressures persist. Following the release, market‑based expectations for a March rate cut dropped sharply to 6%–10%.

Attention now turns to delayed fourth‑quarter US GDP figures and the latest PCE inflation numbers. Both due to be released late on Friday, they are central to judging whether disinflation remains on track and are heavily scrutinised by Fed policymakers. 

In the UK, inflation moved another step closer to the Bank of England’s 2% target. Headline CPI slowed to 3.0% in January from 3.4% in December, while CPIH eased to 3.2% from 3.6%. Goods and services inflation is losing momentum - albeit gradually. Meanwhile, fresh labour‑market data showed further softening: unwelcome news for workers but helpful for the Bank of England, as easing wage pressures and rising unemployment give policymakers more room to consider rate cuts. With the new Labour government constrained by limited fiscal space, monetary policy remains the primary lever available to support the UK’s sluggish economy.

Taken together, this week’s data strengthens the case for UK interest‑rate cuts later in 2026. Lower inflation, moderating wage growth and a softer labour market all point in the same direction. Some economists expect rate cuts sooner rather than later, but - as ever - the path ahead will remain firmly “data dependent”.

Geopolitics

Heightened tensions between Washington and Tehran drove oil prices higher. Reports of a US military buildup in the region and speculation that US President Donald Trump may be weighing a limited strike on Iran have fuelled concerns over supply disruptions. Iran has warned it would retaliate if attacked. Brent and WTI crude prices climbed to their highest levels since August last year, and safe‑haven flows supported the dollar and gold. Markets remain highly sensitive to any new escalation. Parallel unrest inside Iran has added to market anxiety.

The Russia–Ukraine conflict continued to cast a long shadow over European markets. Recent weeks have seen renewed Russian targeting of Ukraine’s energy infrastructure, a policy that raises winter‑supply risks and pushed natural gas prices higher.

Companies

BAE Systems delivered a robust set of full‑year results, with sales up 10% to a record £30.7bn and operating profit rising 9% to £2.93bn, driven by surging global defence spending and major contracts across Europe and the US. The group secured £36.8bn in new orders, pushing its order backlog to an unprecedented £83.6bn. Management described the outlook as a “new era of defence spending” amid escalating security threats, guiding for further sales and profit growth in 2026 as the company continues to benefit from multi‑year rearmament programmes and sustained demand for its aircraft, warships and advanced military technologies. 

UK‑listed mining heavyweights delivered a mixed set of results this week, underscoring a sector defined by strong copper economics and the continuing downturn in the once mighty diamond industry. Antofagasta set the pace with record 2025 earnings, driven by higher realised copper prices. Revenue rose 30% and pretax profit increased 53%, though copper production dipped slightly by 1.6%, trimming some of the market’s enthusiasm. Glencore, another copper‑centric name, reported slightly lower full‑year earnings, with adjusted EBITDA slipping 6% to $13.51bn, although this still exceeded analyst forecasts. The group emphasised its ambition to become one of the world’s largest copper producers by 2035, targeting 1.6m tonnes of annual output. The diversified miners show uneven performance. Rio Tinto delivered solid operational results, supported by stronger copper‑equivalent production and improved cost discipline.  The company maintained its dividend despite lower annual earnings, reflecting confidence in balance‑sheet strength and long‑term demand trends. Anglo American closed out the week with the weakest headline numbers, posting a $3.7bn loss after a further $2.3bn write down at De Beers, marking the latest chapter in a multi‑year downturn in diamond markets. 

Although not a miner, CRH – a major FTSE‑listed building materials group often grouped with the industrial resources complex – also posted 2025 results. The figures were robust and management struck a notably upbeat tone for 2026, projecting further earnings growth and continuing its share buyback programme.

InterContinental Hotels Group reported a strong set of full‑year 2025 results, with operating profit rising 13% to $1.265bn, helped by modest global revenues per available room (RevPAR) growth of 1.5 percent and record expansion across its estate. The group opened 443 hotels – its highest ever – and signed deals for more than 100,000 rooms, extending its pipeline to nearly 2,300 hotels. 

Over in the US, Walmart’s latest quarterly results showed better‑than‑expected sales and profits, with revenue up 5.6%, strong US comparable sales, and global e‑commerce growth of 24%, which turned profitable for the first time thanks to AI‑driven automation in fulfilment centres and rapid growth in its retail media arm, Walmart Connect. The retailer is leaning heavily into AI‑enabled logistics, targeted advertising and personalised digital shopping, forming the backbone of a long‑term strategy to boost margins and deepen customer engagement. However, despite robust performance and a $30bn buyback programme, the market reacted negatively, with the share price slipping as investors focused on Walmart’s cautious earnings outlook for the coming year, which fell short of expectations amid concerns over pressure on consumer spending and a softer macro backdrop.