London‘s FTSE 100 bounced back on Tuesday, ending a four-day losing streak, as gains in defence and insurance stocks helped offset ongoing nerves over US-led trade tensions.
The FTSE 100 index closed up 208.45 points, 2.7%, at 7,910.53. The FTSE 250 ended 583.96 points higher, 3.3%, at 18,349.15. The AIM All-Share rose 17.24 points, 2.8%, at 641.66.
The Cboe UK 100 ended up 2.8% at 787.57, the Cboe UK 250 advanced 3.2% at 15,964.47, and the Cboe Small Companies ended up 1.0% at 14,669.14.
In London, defence and aerospace stocks led the rebound.
Rolls-Royce jumped 7.6%, BAE Systems climbed 5.6%, Babcock International advanced 6.0%, and Melrose Industries improved 4.0% after the US administration pledged a $1 trillion defence budget.
President Trump, during a press event with Israeli Prime Minister Benjamin Netanyahu, said the upcoming budget would be ‘in the vicinity’ of $1 trillion, while Defence Secretary Pete Hegseth wrote on X: ‘Coming soon: the first trillion dollar’ defence budget.
Scottish Mortgage Investment Trust, which invests in US tech giants, rose 4.9% as the Nasdaq rose, while insurance stocks were also prominent risers, with M&G up 4.8%, Legal & General up 5.2% and Aviva up 4.6%.
In a turnaround from recent days, only a handful of stocks traded in the red, led by BT, down 3.1% after UBS said ’sell’, pointing to downside risks at the telco’s broadband business, Openreach.
In European equities on Tuesday, the CAC 40 in Paris ended up 2.5%, while the DAX 40 in Frankfurt jumped 2.5%.
In New York, at the time of the London equities close, the DJIA and the S&P 500 index were 2.2% higher, and the Nasdaq Composite was up 2.4%.
The tentative recovery in equities came amid some optimism that some tariffs could be scaled back despite the escalation in tensions between the US and China.
US Treasury Secretary Scott Bessent said Washington has agreed to open negotiations with Japan over tariffs, with Bessent saying Tokyo ‘would get top priority as they came forward very quickly’.
The US president has also signalled willingness to negotiate with other countries over their tariff rates.
‘There can be permanent tariffs and there can also be negotiations, because there are things that we need beyond tariffs’, Trump said on Monday at a press conference in Washington with Israeli Prime Minister Benjamin Netanyahu.
European Commission president, Ursula von der Leyen, said the EU had offered the US ‘zero-for-zero tariffs for industrial goods’ and that offer remained on the table.
But there was no sign of an end to the war of words between Washington and Beijing.
China vowed to ‘fight to the end’ if the US presses ahead with tariff increases, pushing the world’s two largest economies to the brink of a full-blown trade war.
‘If the US proceeds with implementing these escalated tariff measures, China will resolutely take countermeasures to safeguard its own rights and interests,’ a ministry spokesperson said.
In London, Rachel Reeves said US tariffs will ‘continue to have huge implications’ before insisting the Bank of England believes the UK banking system is ‘resilient’.
The UK chancellor told MPs in Westminster that the BoE confirmed that markets are functioning effectively and that the banking system is resilient.
‘A trade war is in nobody’s interest, it is why we must remain pragmatic, cool-headed and pursue the best deal with the US that is in our national interest. This remains our priority,’ she added.
But analysts remained circumspect as to whether the rally was sustainable.
Kathleen Brooks at XTB said: ‘Since the tariff headlines have been unpredictable, it is hard to know with any conviction where markets will go next.’
But Panmure Liberum strategists struck a more optimistic note.
‘In the case of the S&P 500 the market drop implies seven years of no earnings, while in the case of the European and UK stock markets the market drop implies three years of no earnings whatsoever. Needless to say that we never had such a long period of zero earnings across the market in modern history,’ the broker wrote.
It thinks stock market valuations, ‘which have been attractive in the UK and Europe before, are now even more attractive.’
The pound was quoted higher at $1.2772 at the London equities close on Tuesday, compared to $1.2739 at the close on Monday. The euro stood at $1.0914, lower against $1.0917 at the same time on Monday.
Against the yen, the dollar was trading lower at JP¥146.95 compared to JP¥147.79 late Monday.
US data on Tuesday showed the NFIB Small Business Optimism Index declined for the third consecutive month in March, dipping 3.3 points to 97.4.
Wells Fargo noted although optimism remains above its level preceding the 2024 election, the index is now back below its historical average.
‘Small firms‘ economic outlooks continue to deteriorate, with dimming economic perceptions and worsening sales expectations as the driving force behind March’s decline,’ the broker said.
In addition, the percent of firms planning to raise prices over the next few months reached the highest share in 12 months, it added.
Back in London, Unite rose 2.6% after a solid-looking trading update.
The Bristol, England-based student accommodation manager said it is on track to deliver rental growth of 4% to 5% and occupancy of 97% to 98% for the current academic year after an acceleration in reservations in recent weeks.
It said the outlook for student numbers is ‘positive’ for the 2025/26 academic year, with domestic demand underpinned by a 2% larger population of UK 18-year-olds and a likely increase in overseas students.
Brent oil was quoted at $63.95 a barrel at the London equities close Tuesday, down from $64.41 late Monday. Gold was quoted higher at $3,009.89 against $2,981.58 at the close on Monday.
Wednesday’s UK corporate calendar has a trading statement from sports retailer JD Sports.
The economic calendar for Wednesday sees the release of minutes from the last Federal Open Market Committee meeting.
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