Markets braced for more mega-cap listings

Equities showed resilience over the last week, even as bond and commodity markets pointed to a more fragile macro backdrop. Investors were pulled between optimism over potential de‑escalation in the Middle East and mounting concerns about inflation and interest rates. Equities remained relatively resilient, with major US indexes hovering near recent highs.

Government bond markets struck a more cautious tone, with yields climbing as higher energy costs fed inflation fears and reinforced expectations that central banks may keep policy tighter for longer. Oil prices continued to dominate sentiment, fluctuating on headlines around the Iran conflict and disruptions to supply through the Strait of Hormuz.

The FTSE 100 was up 2.47% over the week by mid‑session on Friday, while the more UK‑focused FTSE 250 traded 2.14% ahead.

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Middle East

Developments in the Middle East remain uncertain and subject to rapid change, though recent signals have provided a degree of tentative reassurance for markets. Discussions around a possible ceasefire, alongside the emergence of a broader outline agreement, have helped to steady investor sentiment, reflected in a pullback in oil prices and a more constructive tone in equity markets. For now, this indicates that investors are factoring in at least a partial likelihood of de-escalation. Despite this improvement in mood, the underlying situation remains fragile and unresolved. 

Looking beyond the immediate objective of a ceasefire, the framework sketches out a more ambitious roadmap. This includes the potential easing of sanctions, the release of frozen Iranian assets and commitments aimed at preventing further escalation, alongside a broader ambition of reducing conflict across the region, including via proxy actors. A subsequent phase of negotiations is expected to tackle more difficult structural questions – notably the role of US military presence and Iran’s nuclear activities – although these remain significant obstacles and are unlikely to be resolved quickly. At the same time, disruption to energy flows through the Strait of Hormuz continues to be a key concern. While there have been limited signs of improvement, with some tankers beginning to transit the route again, overall volumes remain well below typical levels. Iran has also indicated an intention to formalise its control over the strait by introducing a system to regulate and levy charges on passing vessels, reinforcing the strategic importance of the waterway and the potential for continued supply constraints.

The UK has eased elements of its sanctions regime on Russian oil, issuing licences that allow the import of diesel and jet fuel refined in third countries from Russian crude, reversing a ban introduced last year as global energy markets have tightened. The move – described by ministers as a “targeted” and in some cases time-limited adjustment to protect fuel supplies – comes amid surging prices and fears of shortages linked to conflict in the Middle East, with the government insisting the broader sanctions framework remains intact and will be strengthened over time. The implications are both economic and geopolitical. In the short term, the relaxation is likely to ease pressure on fuel supplies and curb price spikes for consumers and airlines, highlighting the limits of sanctions when they collide with energy security concerns. But it also exposes fractures in the Western sanctions regime, particularly as similar waivers have been introduced by the US, potentially weakening coordinated pressure on Russia’s oil revenues. 

UK gilt market

Mounting pressure on UK prime minister Keir Starmer following heavy local election losses has fuelled speculation over a Labour leadership challenge, injecting a fresh risk premium into gilts and pushing borrowing costs to multi‑decade highs. Investors are unnerved by the possibility that a successor could loosen fiscal policy. Yields spiked as markets priced in uncertainty over the future of the government’s “non‑negotiable” fiscal rules and the risk of higher spending or borrowing under a more left‑leaning leadership, though moves have partially reversed at times on efforts by ministers to reaffirm fiscal discipline. At the same time, debate within Labour over potential measures such as a wealth tax has added to investor unease about policy direction, even as chancellor Rachel Reeves and allies have sought to reassure markets that fiscal credibility will be maintained. Overall, the episode has underscored how sensitive UK bond markets remain to political instability, with gilt yields rising not just on global inflation pressures linked to the Middle East conflict but also on concerns that domestic political shifts could undermine budget discipline. Are high yield bond funds a good investment?

Economics

UK inflation unexpectedly eased to 2.8% in the year to April, down from 3.3% in March and below economists’ forecasts, offering a brief respite for households as falls in gas and electricity bills and weaker services inflation offset a sharp rise in motor fuel costs. The easing was driven largely by base effects and the introduction of a lower Ofgem energy price cap, alongside softer price growth in categories such as food and leisure, although underlying pressures remain with goods inflation ticking up and fuel prices surging on the back of global energy disruptions. Most forecasters expect the slowdown to prove temporary, with the Bank of England warning inflation could rise again later this year as higher energy bills feed through, potentially climbing back towards 3.5%-4% and even higher under adverse scenarios, leaving policymakers balancing persistent price pressures against a weakening labour market. 

The International Monetary Fund (IMF) upgraded its forecast for UK economic growth to 1% in 2026 from 0.8%, citing stronger-than-expected momentum in activity earlier in the year and a resilient performance despite global shocks. The revision follows robust first-quarter data, which showed the economy expanding by 0.6%, and reflects upward revisions to recent output alongside a rebound in sectors such as retail and construction. However, the IMF stressed that the improvement does not signal a strong outlook, warning that higher energy prices, tighter financial conditions and domestic political uncertainty will weigh on growth, leaving the expansion modest by historical standards. 

The UK struck an “historic” free trade agreement with the six members of the Gulf Cooperation Council – Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain and Oman – marking the first such deal between the bloc and a G7 economy after four years of negotiations. The accord, which still requires ratification, will remove most tariffs on British exports, cutting an estimated £580m a year in duties and making products ranging from cars to food items such as cheese and chocolate tariff-free, while also opening access for services, investment and digital trade. The government says the deal could add about £3.7bn annually to UK GDP in the long run and raise wages by £1.9bn, while establishing frameworks on areas including financial services, data flows and professional mobility. The agreement is economically meaningful but not transformative: a projected £3.7bn boost equates to a modest uplift in GDP, suggesting the chief gains will be sector-specific rather than economy-wide. UK strengths in services – finance, legal and professional sectors – are likely to benefit disproportionately from improved market access and regulatory assurances, while goods exporters, particularly in autos and food, gain from tariff elimination. 

Supermarkets and industry bodies reacted with astonishment to UK government proposals to cap the price of staple foods, warning that such measures would be unworkable and risk distorting the market. Retailers argued that price controls could force grocers to sell goods at a loss and fail to address the underlying drivers of inflation, such as higher energy, commodity and regulatory costs, with the British Retail Consortium likening the policy to “1970s-style” intervention. Senior executives were particularly blunt, with Marks and Spencer’s chief executive describing the idea as “completely preposterous”, while former supermarket leaders cautioned that caps could deter investment and even breach competition rules. Overall, grocers pushed back strongly, urging ministers to focus instead on cutting taxes and regulatory burdens rather than imposing price limits that they say would ultimately raise costs and undermine the sector.

Minutes from the Federal Reserve’s latest Federal Open Markets Committee meeting painted a more cautious and increasingly hawkish picture, with policymakers holding rates steady at 3.5%–3.75% but signalling growing concern that inflation could remain elevated for longer than previously expected. While the US economy was still described as expanding at a solid pace, the committee acknowledged heightened uncertainty and a marked divergence of views, with an unusually high number of dissenting voices reflecting disagreement over whether policy should retain an easing bias. Crucially, most officials indicated that further tightening could become appropriate if inflation persists above target, even as some members still see scope for eventual rate cuts if disinflation resumes or the labour market weakens. 

Company news

SpaceX has unveiled its long‑awaited initial public offering (IPO) filing, setting the stage for what could be the largest listing in history, with the Elon Musk‑led group targeting a valuation of as much as roughly $1.7tn–$1.75tn and a potential capital raise of up to $75bn. The initial S-1 filing offers the first detailed look at the company’s finances, showing rapid revenue growth to about $18.7bn last year but continued heavy losses as it pours investment into its Starlink satellite network and cash‑hungry artificial intelligence unit, xAI. The filing underscores a business that has evolved beyond rockets into a sprawling technology group spanning space, connectivity and AI, while highlighting both vast long‑term ambitions – including orbital data centres and Mars colonisation – and significant risks tied to execution, capital intensity and Musk’s continued control, with the founder expected to retain dominant voting power after listing. 

The SpaceX filing followed a major setback for Mr Musk in his legal battle with OpenAI and its chief executive Sam Altman after a US jury dismissed his $150bn lawsuit, ruling that he had waited too long to bring claims that the ChatGPT maker had abandoned its original non-profit mission in favour of profit. The three‑week trial ended without the court ever addressing the substance of Musk’s allegations, with the case instead thrown out on statute‑of‑limitations grounds, prompting Musk to vow an appeal. The verdict is a significant win for OpenAI, removing one of the biggest legal overhangs on the company and clearing the path for a potential blockbuster IPO later this year that could value the group at around $1tn, setting up a high‑profile showdown with Musk’s own ventures in public markets such as SpaceX.

US index providers are overhauling their inclusion rules through a new “fast entry” mechanism – sometimes dubbed the “2fast entry” shift – that will allow newly listed mega-cap companies to enter key benchmarks such as the Nasdaq‑100 within weeks rather than months. Under the updated methodology, companies with valuations typically above $100bn can be assessed within days of listing and added after as little as 15 trading days, compared with a previous waiting period of three months or longer, while requirements such as a minimum public float have been relaxed to accommodate founder‑controlled tech groups. The change is widely seen as paving the way for blockbuster IPOs including SpaceX, OpenAI and Anthropic to be absorbed rapidly into index‑tracking funds, triggering large, automatic inflows from passive investors that benchmark against these indices. 

Nvidia delivered another blockbuster first quarter, beating Wall Street forecasts. Guidance for the second quarter also came in ahead of expectations, underpinned by surging demand for AI infrastructure and a near‑doubling of data centre sales. Yet the market reaction was notably muted, with the shares edging lower after the release as investors looked beyond the headline numbers and questioned how much of the AI boom is already priced in. The disconnect highlights a growing valuation challenge: with Nvidia trading on expectations of sustained hyper‑growth, even strong results can fail to lift the stock, particularly in a macro environment where bond yields are rising. As the conflict in the Middle East drives inflation concerns and pushes up yields, the higher discount rate applied to future earnings is compressing valuations of growth companies as it makes the value of future earnings lower in today’s terms. If the situation in the Middle East remains unresolved, it may leave richly priced growth companies such as Nvidia vulnerable to valuation weakness despite continuing operational strength. 

Marks & Spencer reported a challenging but resilient full-year performance, with group sales rising sharply to more than £17bn but profits hit by the fallout from a major cyberattack that disrupted operations and dented margins. Nevertheless, its food business continued to outperform, with sales up around 7% and strong market share gains underpinning customer growth and a solid second half. The retailer maintained investment in its turnaround strategy, highlighting improving momentum as disruption eased, though it warned of ongoing headwinds from higher costs, taxes and global uncertainty even as it targets a return to profit growth in the year ahead.

Short-haul airline easyJet’s interim results were broadly in line with guidance, with a first‑half pre‑tax loss of around £550m as strong demand and firm pricing were offset by seasonal losses and higher costs. The airline reported resilient passenger demand, high load factors and continued momentum in its higher‑margin holidays division but warned that the backdrop has become more challenging due to rising fuel prices and geopolitical uncertainty linked to the Middle East conflict. Forward bookings have softened slightly and shifted closer to departure, reducing visibility on the key summer season, while margins remain under pressure from cost inflation. Management struck a cautious tone on the outlook, emphasising that while demand remains intact, profitability in the second half will depend heavily on fuel price movements and the ability to sustain fares in a more volatile environment. What the Iran war could mean for flights and travel.

Ryanair reported a record set of full‑year results, with profit after tax rising 40% to €2.26bn as higher fares and resilient demand offset aircraft delivery delays and rising costs, while revenue climbed 11% to €15.54bn and passenger numbers increased 4% to 208.4 million. The low‑cost carrier maintained tight cost discipline, with unit costs up just 1%, reinforcing its competitive advantage across European aviation. However, the outlook is more uncertain, with management declining to give firm profit guidance as volatility in fuel prices linked to the Middle East conflict and a shift towards later bookings cloud visibility on the crucial summer season. 

British Land reported a solid set of full-year results as strong leasing activity across its London campuses and retail parks drove rental growth and asset values higher. The FTSE 100 landlord leased 3.8 million square feet over the year at rents above expectations, pushing like-for-like net rental growth to 6% and lifting portfolio occupancy to 96.9%, with retail parks effectively full at 99%. Rising demand from technology and AI tenants helped fuel a surge in central London office take-up – now at a two-decade high – while constrained supply underpinned value gains and a 2.3% increase in portfolio valuations. 

Experian reported a “record” full-year performance as the credit data group benefited from robust demand for analytics, fraud prevention and consumer services alongside margin expansion and strong cash generation. Organic revenue growth came in at the top end of guidance at 8%, while operating profit and returns also improved, allowing the company to raise its dividend and launch a new $1bn share buyback as it pointed to continued expansion into AI-driven products and data platforms. Despite the solid results, its shares fell sharply as investors focused on a softer-than-expected outlook. Concerns over macroeconomic headwinds – including weaker credit demand, currency effects and regulatory risks – further weighed on sentiment. 

Severn Trent reported a strong set of full-year results, driven by higher bills, operational efficiencies and performance incentives as the regulated water group accelerated investment in its infrastructure. The company invested a record £1.9bn to expand its asset base and improve environmental performance, including reducing pollution, leakage and sewer flooding. Management upgraded its medium-term earnings outlook, highlighting a pipeline of further investment and confidence in sustained growth, even as higher financing costs pushed debt levels and interest expenses higher. 

BT Group reported a steady set of full-year results. Operationally, the standout performance came from Openreach, where a record fibre rollout and 2.2 million new connections drove demand, alongside continued expansion of EE’s 5G network, even as broadband line losses persisted and weighed on overall growth. BT reiterated its strategy of investing heavily in network infrastructure while accelerating a multiyear cost-cutting programme, though it warned that revenues are likely to remain under pressure in the near term amid competitive and structural headwinds. 

Sage reported a strong set of interim results as rising demand for its cloud and AI-enabled services boosted recurring revenues and profitability. Annualised recurring revenue increased 11% to £2.7bn, reflecting strong customer retention and uptake of new services, with recurring income now accounting for the vast majority of group sales. Management also struck a confident tone on the outlook, upgrading full-year guidance, pointing to accelerating momentum driven by its AI strategy and continued expansion of its cloud platform across small and mid-sized business customers.