FTSE 100 rises towards record as defence and mining shares rally

​Defence shares surge on geopolitical tensions

​United Kingdom (UK) defence stocks rallied sharply in early trade as investors rotated into the sector following US military action in Venezuela. BAE Systems, Babcock and Melrose all outperformed the broader market, reflecting increased focus on defence spending and geopolitical risk.

​The move highlights how quickly market sentiment can shift when tensions escalate. Defence stocks tend to benefit from increased government spending commitments, particularly when conflicts emerge. This creates a tailwind that can last beyond the immediate news cycle.

​However, defence shares can be volatile around these events. Initial rallies often give back some gains as the immediate shock fades. Investors need to distinguish between short-term volatility and longer-term structural trends in defence spending.

​Precious metals rally lifts UK miners

Gold rose about 2% while silver gained nearly 4%, providing strong support for UK-listed precious metal miners. Fresnillo, Endeavour Mining and Hochschild all climbed as investors sought safe-haven assets amid ongoing market uncertainty.

​The precious metals rally reflects broader concerns about inflation, currency volatility and geopolitical risk. Gold has historically performed well during periods of uncertainty, making it a popular hedge for investors looking to diversify portfolios.

​Silver's outperformance is particularly noteworthy. The metal often moves more dramatically than gold due to its smaller market size and industrial applications. This dual nature as both a precious metal and industrial commodity can amplify price swings.

​Copper gains support big mining stocks

Rio Tinto, Anglo American and Glencore advanced as copper prices rose on supply concerns and tariff risks. The red metal's strength added further support to the FTSE 100's overall advance, with the major diversified miners all posting solid gains.

​Copper's rally reflects genuine supply-demand dynamics rather than just safe-haven flows. Production disruptions and potential trade barriers have tightened the market outlook. This creates a different investment case than precious metals, which trade more on sentiment.

​The major miners offer diversified exposure across multiple commodities, not just copper. This reduces risk compared to pure-play copper producers but may also limit upside if copper significantly outperforms. Investors need to understand what drives each company's revenues.

​Auction Technology jumps on takeover interest

Auction Technology surged as much as 20% after disclosing multiple rejected takeover approaches from FitzWalter at 360 pence per share. The move highlights renewed M&A interest in undervalued UK stocks, particularly in the technology sector.

​The company's decision to reject the offers suggests management believes the shares are worth more. This creates an interesting dynamic where investors must decide whether to back management's valuation or side with the bidder's view.

​FTSE lags Europe as tech drives gains

​Despite posting gains, the FTSE 100 underperformed broader European indices as rallies were driven by technology shares. The UK market's limited exposure to the technology sector continues to weigh on relative performance.

​This structural weakness has plagued the FTSE 100 for years. While continental European indices benefit from large technology companies, the UK benchmark remains heavily weighted towards financials, miners and energy stocks. This creates a persistent performance drag when tech leads global markets.

​Strong gains in Asia, led by a 3% rise in Japan's Nikkei 225 and record highs in Korea and Taiwan, helped underpin early UK and European equity sentiment. However, the UK captured less of this momentum due to its sector composition.

​Sterling weakens while gilts hold steady

​Sterling fell about 0.3% towards $1.34 as the US dollar extended its rally for a sixth consecutive session. The pound's weakness reflects broader dollar strength rather than UK-specific concerns, though the move does impact returns for investors holding overseas assets.

​UK government bonds were little changed, slightly outperforming European peers with gilt yields down by roughly half a basis point across the curve. This stability suggests bond markets remain comfortable with current UK monetary policy settings.

​However, oil slipped around 0.7% to near $60 a barrel, capping gains in UK energy stocks despite ongoing uncertainty around Venezuela. The energy sector's muted performance limited the FTSE 100's upside, demonstrating how commodity price moves can offset gains elsewhere in the index.