European stocks managed to keep their heads above water heading into Friday afternoon, but they struggled to find their groove amid hesitant trading, with bond market worries and the ongoing Middle East conflict leading to investor caution.
“Markets have lost their foothold after several weeks when it appeared they were successfully climbing the wall of worry,” AJ Bell analyst Dan Coatsworth commented.
“Weakened sentiment is emerging as the US-Iran impasse continues and concerns about government debt mount.”
The US Treasury on Wednesday said it is increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities. The announcement sent bond prices higher, but Treasury yields have since retraced some of the declines.
The FTSE 100 index traded just 4.08 points higher at 10,752.24. The FTSE 250 was up 100.13 points, 0.4%, at 24,608.79, and the AIM all-share was up 5.24 points, 0.7%, at 809.33.
The Cboe UK 100 was up 0.1% at 1,069.31, the Cboe UK 250 was 0.3% higher at 21,421.42, and the Cboe Small Companies was up 0.5% at 19,042.43.
In European equities on Friday, the CAC 40 in Paris was up slightly, while the DAX 40 in Frankfurt was up 0.2%.
The yield on the US 10-year Treasury was steady at 4.70% midday Friday, where it stood at the time of the London equities close on Thursday. The yield on the US 30-year Treasury eased to 5.25% from 5.26%.
Sterling rose to USD1.3661 midday Friday from USD1.3634 late Thursday. Against the euro, it faded to EUR1.1664 from EUR1.1676. The single currency rose against the dollar, buying USD1.1708 compared to USD1.1678. Against the yen, the buck was lower at JPY158.59 from JPY158.87.
Brown Brothers Harriman analysts noted the effort to contain yields has come at the dollar’s expense.
“USD is down against all major currencies,” BBH analysts commented.
“The boost to the Treasury’s buyback operation and the threat of more measures should help cap long-end Treasury yields. But the relief comes with a credibility cost that translates to a weaker USD. The Treasury’s intervention blurs the lines between improving market functioning and suppressing borrowing costs to contain fiscal stress.”
Still to come on Friday is a US flash purchasing managers’ index reading at 1445 BST.
BBH analysts added: “The US August PMI will test whether the US growth advantage relative to other major economies remains intact. If so, the data can offer USD some near-term support, while signs the US growth edge is narrowing would deepen its losses.”
The UK private sector grew at a slightly faster pace in August, a preliminary reading showed on Friday, as the services economy shone.
The S&P Global flash composite purchasing managers’ index rose to 52.5 points in August, a four-month high, from July’s final tally of 52.2.
Moving further above the 50 point mark, the reading suggests growth picked up this month. The PMI also topped the FXStreet cited consensus of 51.6 points.
The composite PMI is calculated using the service and manufacturing sector data.
The services PMI rose to 52.8 according to the August flash, a six-month high, from 52.1 in July. The manufacturing PMI, however, eased to a five-month low of 51.5 from 51.9.
Separate data on Friday showed retail sales fell on a monthly basis in July, but government borrowing was loftier than expected.
Public sector net borrowing totalled £1.80 billion last month, rising from £1.07 billion a year prior. It faded from £12.78 billion in June. Borrowing in July is typically lower than other months due to the timing of additional receipts from self-assessed income tax.
Nonetheless, the latest reading was above the FXStreet cited forecast which had predicted an on-year fall in borrowing to around £300 million.
Pantheon Macroeconomics analyst Rob Wood commented: “We continue to think that risks remain skewed towards borrowing running higher than currently forecast in both the current fiscal year and throughout the medium-term. Burnham has made little secret of his desire to reform social care and boost homebuilding, both of which will require large sums of investment. We also think defence spending will need to be further increased in the coming years.”
In New York, the Dow Jones Industrial Average and S&P 500 are called up 0.3%, while the Nasdaq Composite is set to rise 0.6%.
A barrel of Brent rose to USD93.62 midday Friday from USD93.53 at the time of the London equities close on Thursday. Gold rose to USD4,592.71 an ounce from USD4,518.45. Gold earlier topped the USD4,600 mark for the first time since May.
Supported by the robust gold price, Endeavour Mining added 4.7%, among the best large-cap performers.
Among the FTSE 250, Gamma Communications rose 7.8%. It confirmed it is in discussions with a Dutch private equity firm interested in buying the company, building on several months of takeover speculation.
The provider of cloud communications and voice services named Waterland Private Equity Investments BV and Giacom Group as potential suitors. Gamma noted that talks remain at an early stage, with no certainty that a takeover offer will materialise.
Hunting lost 14%. The provider of equipment and engineering services to the oil and gas industry cut its annual earnings outlook.
It noted Kuwait Oil Co will re-run a tender process originally issued in April.
“An accelerated tender process is now expected to be re-issued during Q3 2026, with the result announced within a month of issuance. Any new contracts awarded will not be recognised until 2027. Hunting has a strong relationship with KOC that is built on more than six years of technical collaboration and supply-chain qualification. Therefore, the directors continue to believe that Hunting remains well-placed to secure further orders from KOC and other tenders underway across the Middle East and Asia Pacific,” it added.
Nonetheless the KOC tender process delay will hit its 2026 earnings before interest, tax, depreciation and amortisation by around USD10 million. As a result, it now expects a full-year outcome between USD138 million and USD141 million, “slightly below previous guidance”.
Stocks with a bitcoin exposure surged. Bluebird Mining Ventures jumped 36% while Smarter Web rose 16%.
Bitcoin surged on optimism over US cryptocurrency legislation and the US Treasury’s surprise move to buy back more of its own bonds, which fuelled a shift to riskier assets. The world’s biggest cryptocurrency by market value climbed to its highest level since May.
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