FTSE 100 lags Europe as ITV surges and Rightmove slumps

FTSE 100 underperforms as sector divergence widens

​The FTSE 100 closed lower as sharp moves in individual stocks highlighted the divergence within the UK market. While continental European indices posted modest gains, supported by stronger performances in automotive and technology sectors, the British benchmark struggled to find direction.

​British Airways owner International Consolidated Airlines Group (IAG) led the declines, sinking nearly 10% in its worst single-day performance since April. The airline group cited softer demand on North Atlantic routes and adverse currency movements, which weighed heavily on third-quarter (Q3) revenue. This marks a concerning development for the travel sector as we head into the crucial winter booking period.

​ITV's 17% surge provided some offset to the index's losses, but it wasn't enough to prevent the FTSE from trailing its European counterparts. The STOXX Europe 600 rose 0.2% as the previous week's technology-led sell-off began to ease, though the broader European index remains on track for its largest two-week decline since early September.

​The sector rotation within the UK market reflects broader uncertainty about the economic outlook. Traders are weighing up the implications of softer growth data against the Bank of England's (BoE) more dovish policy stance, creating a challenging environment for directional bets on the index.

ITV shares soar on potential Sky takeover

​ITV delivered its strongest single-day performance since 2009, jumping 17% after confirming it has entered discussions with Comcast's Sky regarding a potential sale of its broadcasting and streaming operations. The move could fundamentally reshape the UK media landscape and represents a significant strategic shift for the broadcaster.

​The talks centre on ITV's core broadcasting and streaming arm, though specific financial terms have not been disclosed. For Sky, the acquisition would strengthen its position in the UK content market and provide valuable IP rights. For ITV shareholders, the deal could unlock value in assets that have been underappreciated by the market.

​Trading volumes in ITV shares surged well above average as investors rushed to position themselves ahead of potential further announcements. The media sector has seen increased consolidation activity in recent years as traditional broadcasters adapt to the streaming era, making this deal part of a broader industry trend.

​The question now is whether Sky will follow through with a formal offer and at what valuation. ITV's market capitalisation jumped significantly on the news, but traders will be watching closely for any indication of the premium Sky might be willing to pay. Any deal would require regulatory approval, adding another layer of complexity to the timeline.

​Rightmove suffers worst day on record

​Rightmove shares crashed 28% in their worst single-day performance on record after the property portal outlined ambitious AI-driven growth plans that will significantly pressure profit margins next year. Despite reaffirming guidance for 2025, the market took a dim view of the company's strategic direction.

​The sell-off highlights investor concerns about the costs associated with implementing artificial intelligence capabilities across Rightmove's platform. While the company framed the investment as essential for long-term competitiveness, the near-term margin compression proved too much for many shareholders to stomach.

​The property portal has enjoyed a dominant position in the UK housing market, but increased competition and changing consumer behaviour are forcing it to adapt. The AI investment is intended to improve user experience and provide more sophisticated property matching tools, but the execution risk is substantial.

UK housing market shows mixed signals

​UK housing data painted a complex picture of the property market's health. Halifax reported a 0.6% monthly rise in October house prices, marking the strongest monthly increase since January. However, this national strength masked significant regional variation, with London values slipping 0.3% year-on-year (YoY).

​Rightmove's market data revealed that home listings have reached 10-year highs, a development that has helped keep national prices relatively flat despite firm underlying demand. The elevated supply levels suggest sellers are testing the market, potentially ahead of any policy changes that might affect property taxation or affordability.

​Rental growth has shown signs of moderating after the rapid increases seen over the past two years. This cooling reflects both a gradual improvement in rental supply and some easing in tenant demand as affordability constraints bite. The rental market remains tight by historical standards, but the most acute pressures appear to be easing.

​The housing market's performance will be crucial in shaping the BoE's policy decisions. Stronger house prices typically support consumer confidence and spending, but they also raise concerns about financial stability and affordability for first-time buyers. Policymakers must balance these competing considerations as they assess the appropriate path for interest rates.

​Bank of England maintains dovish tone despite holding rates

​The BoE kept its Bank Rate unchanged at 4% but adopted a more dovish tone that has left markets divided on the prospects for a December rate cut. Governor Andrew Bailey emphasised that inflation progress has been encouraging, though he wants to see more data before committing to policy easing.

​Bailey's cautious approach reflects the central bank's desire to ensure inflation remains under control before loosening monetary policy. The upcoming budget and October consumer price index (CPI) data will be crucial inputs for the December decision. Markets are currently pricing in roughly a 60% probability of a 25 basis point cut next month.

​UK government bonds underperformed their European counterparts as traders paused after the recent dovish repricing. The gilt market had already moved to reflect expectations of earlier rate cuts, and investors are now awaiting fiscal policy details from the autumn budget before making further adjustments to their positioning.

​The Bank's communication strategy has become increasingly important as it navigates the path back towards more normal interest rate levels. Too much dovish signalling risks reigniting inflation expectations, while excessive caution could unnecessarily prolong the economic adjustment. Finding the right balance will be critical for maintaining credibility and achieving the inflation target.