FTSE 100 extends losses as retail and energy stocks weigh

FTSE 100 slips

​​​The FTSE 100 slipped around 0.5% in Wednesday trading, extending Tuesday's losses and lagging behind European counterparts. The session was dominated by stock-specific moves following trading updates from major index constituents, with retailers and energy names providing most of the downward pressure.

​This represents the index's second consecutive decline, with sentiment weighed down by profit warnings and weaker-than-expected sales figures. The moves highlight how individual company performance is currently driving market direction, rather than broader macroeconomic themes.

​European markets showed more resilience, with the FTSE 100 notably underperforming its continental peers. This divergence suggests United Kingdom (UK)-specific concerns around consumer spending and corporate profitability are taking centre stage for investors.

​Retail sector delivers mixed signals

Associated British Foods (​AB Foods) shares plunged up to 11%, marking their worst single-day performance since April, after Primark warned on festive trading. The fashion retailer flagged weaker-than-expected sales and higher markdown activity over the crucial Christmas period, catching investors off guard.

​The profit warning extended beyond Primark's core fashion business, with the company also highlighting softer trading conditions across its food and ingredients divisions. This broader weakness suggests the challenges facing the group are not confined to a single segment.

​Tesco shares fell as much as 5.3% despite maintaining profit guidance at the top end of expectations. UK like-for-like sales missed forecasts, with disinflation and increased discounting activity eating into revenue growth, even as volumes held up reasonably well.

​The contrasting performance from Marks & Spencer (M&S), which reported strong third quarter (Q3) results led by food sales, demonstrates the divergence within the sector. Greggs said trading remained in line with expectations but warned that challenging conditions persist, reinforcing the cautious tone across grocery retail.

​Shell and miners add to index pressure

Shell PLC provided the largest single drag on the FTSE 100, with shares declining nearly 2% following a disappointing production update. The energy giant's oil trading results deteriorated sharply, while its chemicals division continues to generate losses, raising questions about the near-term earnings outlook.

​The weak production figures come at an awkward time for Shell, with oil prices showing little sign of sustained recovery. This combination of operational underperformance and challenging market conditions creates a difficult backdrop for the stock.

​Mining stocks added to the negative tone, declining in tandem with falling metal prices. Copper, gold and silver all weakened during the session, with the precious metals' retreat particularly notable given recent strength in the sector.

​The miners' weakness reflects both the immediate pressure from lower commodity prices and broader concerns about demand, particularly from China.

​Defence stocks rally on geopolitical concerns

​BAE Systems surged close to 7%, leading gains across the defence sector as heightened geopolitical tensions and United States (US) pressure for increased European defence spending boosted sentiment. Babcock and Rolls-Royce also advanced, with the sector providing rare positive momentum for the index.

​The rally follows renewed calls from US officials for NATO allies to substantially increase defence budgets. This political backdrop creates a favourable environment for UK defence contractors, who are well-positioned to benefit from rising European military expenditure.

​The performance of defence stocks stands in stark contrast to the broader market weakness, highlighting how sector-specific drivers can override general market sentiment. Investors seeking shares with structural tailwinds have increasingly turned to defence names.

​UK housing market shows weakness

​Halifax reported that house prices fell 0.6% in December, taking the annual growth rate down to just 0.3%. Average prices dropped to their lowest level since June, reinforcing the view that the UK property market remains subdued despite falling interest rates.

​The weakness in house prices comes despite expectations that lower borrowing costs would provide support. This suggests other factors, including consumer confidence and affordability constraints, are weighing more heavily on buyer sentiment than the decline in mortgage rates.

​Looking ahead, Halifax forecast modest house price growth of 1% to 3% for 2026. The lender cited easing uncertainty, further falls in interest rates and improved affordability as potential supports, though acknowledged persistent consumer headwinds.

​The cautious outlook for housing reflects the broader uncertainty around consumer spending power. With wage growth moderating and living costs still elevated, the housing market's trajectory will depend heavily on how household finances evolve over the coming months.

​What's next for the FTSE 100?

​Sterling slipped around 0.1% against the US dollar towards $1.34, while gilt yields edged one basis point lower, slightly outperforming European bonds. These relatively modest moves suggest currency and bond markets are taking a wait-and-see approach to recent developments.

​The currency and rates picture provides little clear direction for equities. With neither offering strong signals, stock selection becomes even more important, particularly as company-specific factors drive performance.