European shares edge higher but FTSE 100 lags on bank weakness

​​​Europe gains but London struggles to keep pace

​European shares posted modest gains on Wednesday, with the pan-European STOXX 600 rising 0.2% to 576.90 points by mid-morning. Germany's DAX 40 gained 0.4% whilst France's CAC 40 added 0.2%, both benefiting from strength in technology and industrial names.

​The FTSE 100 failed to join the party, remaining under water as banks, AstraZeneca and British American Tobacco (BATS) weighed on the index. It's a familiar story for London, which continues to struggle when global risk appetite improves, held back by its heavy weighting towards old economy sectors.

​Technology stocks provided the biggest boost across Europe, extending gains to a fourth consecutive session. This run has helped offset weakness elsewhere, though the narrow leadership raises questions about the durability of the rally.

​Industrial stocks followed tech higher, with defence names leading the sector with a 1% advance. Rheinmetall gained 2.1% and Leonardo added 1.2%, benefiting from ongoing geopolitical uncertainty despite no breakthrough in Ukraine peace talks.

​Defence stocks gain despite stalled peace talks

​Russia and the US failed to reach a compromise on a possible peace deal after a five-hour Kremlin meeting between President Vladimir Putin and Donald Trump's top envoys. The lack of progress adds to uncertainty over when a ceasefire might materialise.

​Rather than dampening defence stocks, the continued uncertainty appears to have supported them. The sector has proven resilient throughout the conflict, with order books for major contractors remaining robust regardless of peace talk outcomes.

​Rheinmetall's 2.1% gain takes it closer to recent highs, whilst Leonardo's advance suggests investors expect defence spending to remain elevated. The geopolitical backdrop continues to provide a floor under these names, even when broader markets wobble.

​The defence sector's performance highlights how markets have adapted to the Ukraine situation. What would once have caused significant volatility now barely registers, with investors more focused on company fundamentals and order pipelines.

​Smiths surges on detection unit disposal

​Smiths Group led the FTSE 100 with a gain of as much as 4.9% after announcing the sale of its airport scanners business Smiths Detection to private equity firm CVC for £2 billion. The deal represents 16.3 times the unit's headline operating profit, a decent multiple.

​Net cash proceeds of approximately £1.85 billion are expected, with management planning to return a large portion to shareholders. This would come on top of the recently announced £1 billion buyback, potentially totalling £2.5 billion in shareholder returns or about 30% of market capitalisation.

​The sale price came in at the top end of valuation expectations, which explains the positive market reaction. Each £100 million of incremental value is equivalent to roughly 1% per share, so securing the upper end of the range matters.

​Smiths is refocusing as a premium industrial engineering company specialising in flow management and thermal solutions. Whether this streamlined business can deliver better growth remains to be seen, but shareholders are being compensated handsomely for the strategic shift.

​Sainsbury's hit by Qatar stake reduction

​Sainsbury's slid as much as 8.2% after Qatar's sovereign wealth fund offloaded part of its stake, selling shares at 317.6 pence each. That's below Tuesday's close of 326 pence, which helps explain the market's negative reaction to the placement.

​The Qatari fund is offloading approximately £273 million of shares, taking its stake from 10.5% down below that of Vesa Equity. The vehicle of Czech billionaire Daniel Kretinsky becomes the top shareholder following the transaction.

​Sainsbury's shares remain higher for the year but have lagged behind Tesco and are now underperforming the FTSE 100. Both leading grocers have posted strong sales growth and market share gains, yet the sector faces multiple headwinds.

​Concerns about a potential price war in an industry already operating on razor-thin margins have capped momentum. Add in extra labour costs resulting from the budget, and it's clear why investors aren't rushing to pile into the grocers despite decent operational performance.

​Spire slumps on NHS commissioning weakness

​Private hospitals operator Spire crashed as much as 15% after warning earnings would land at the bottom end of guidance. The culprit is lower commissioning activity from the NHS, which has hit volumes for elective procedures.

​Budget restrictions on Integrated Care Boards have slowed the work flowing to private operators. Spire performs various elective procedures via commissioning arrangements with local health groups, making it particularly exposed to NHS spending decisions.

​Comments about potential "proactive tendering" point to pricing pressure as well as volume weakness. NHS trends for the group look negative, and there's little sign of imminent improvement given the broader fiscal constraints facing the health service.

​The 15% drop seems harsh but reflects the uncertainty around both volumes and pricing. Private healthcare operators relying heavily on NHS commissioning work face a difficult period as the public sector tightens its belt.

​Banks drag FTSE lower despite continental gains

​UK banks fell across the board, contributing significantly to the FTSE 100's underperformance versus European peers. The sector faces ongoing concerns about lending margins and the potential for higher provisions as the economic outlook remains uncertain.

​The British pound rose 0.2% against the US dollar, trading close to a session high above $1.32. Sterling gained against all major peers as the US currency weakened, though this currency strength doesn't appear to be helping bank stocks.

​Gilt markets saw small moves, with yields down slightly at the longer end of the curve. UK government bonds continue to show limited volatility, a marked contrast to the turbulence seen in recent months.

​The divergence between UK and European equity performance reflects sector-specific pressures rather than broader market sentiment. London's heavy weighting towards banks, tobacco and pharmaceuticals proves a hindrance when global risk appetite improves.

​Mixed corporate updates across the market

​Inditex provided some cheer, rallying 7% after the Zara owner reported a strong start to winter sales. November revenue in constant currencies jumped nearly 11%, accelerating from 8.4% growth in the third quarter (Q3). The update suggests consumer spending on clothing remains more resilient than feared.

​Paragon Banking fell more than 6% despite reporting a small rise in full-year profit. Weaker lending margin guidance for the year ahead and higher provisions overshadowed the better-than-expected current margins, highlighting how forward guidance matters more than historic results.

Trainline slumped about 11% after receiving its only sell rating from JPMorgan. The UK's decision to freeze regulated rail fares for next year played into the downgrade, removing a potential growth driver for the online ticket seller.

​Engineering group Senior secured a multi-year contract from Airbus for aerospace parts, whilst publisher Bloomsbury announced an AI partnership with Google Cloud. These developments barely moved their respective share prices, suggesting investors need more substantial newsflow to get excited.

​Central bank guidance takes centre stage

​Investors are awaiting remarks from European Central Bank (ECB) President Christine Lagarde for signals on the interest rate outlook. Markets continue to assess the pace of future rate cuts, with any deviation from expectations likely to move bond and currency markets.

​US private payrolls data is expected later in the day, providing insight into labour market conditions ahead of Friday's non-farm payrolls release. The figures will help shape expectations for Federal Reserve policy in the months ahead.

​The technology sector's four-day winning streak continues to provide support for European indices, though the narrow nature of the gains raises concerns. When rallies are driven by a handful of sectors rather than broad participation, they tend to be more vulnerable to reversals.

​Currency markets remain focused on dollar weakness, with sterling's strength reflecting reassessment of UK interest rate expectations relative to the US. The pound's resilience provides some offset to the FTSE 100's struggles, at least for international investors.