FTSE 100 Extends Rally as Bond Market Pressure Eases

The FTSE 100 extended its rally on Tuesday, marking its third consecutive day of gains. The index climbed about 0.6% in early trading, building on modest gains from Monday and Friday. This rebound follows a turbulent week where the FTSE 100 suffered a 2.2% decline, its worst weekly performance since April, driven by surging UK gilt yields and a broader reassessment of equities against government bonds.

The immediate relief came from easing pressure in global bond markets. Euro-zone yields softened after a sharp rise fueled by fiscal concerns in France and political uncertainty in Spain. However, the underlying challenges persist, with the UK 10-year gilt yield climbing above 5.4%, its highest since 2007, and the 30-year yield briefly exceeding 6% for the first time since 1998. Russ Mould, investment director at AJ Bell, noted that rising gilt yields are now competing with FTSE 100 income, though the index's earnings yield of about 7.4% still presents a valuation case.

AstraZeneca's 2% gain provided significant support to the FTSE 100, as the pharmaceutical giant's large weight in the index can materially influence its performance. Healthcare stocks also boosted European markets, with the STOXX 600 gaining about 0.8% and the sector up roughly 1.6%. Denmark’s Genmab surged after positive late-stage blood-cancer trial results, contributing to the broader sector's strength.

Despite the rebound, inflation pressures remain a concern. S&P Global’s UK services PMI for September came in at 52.1, slightly above the flash estimate but down from August. Firms reported the sharpest increase in selling prices since May due to rising fuel and wage costs. Analysts suggest this renewed price pressure strengthens the case for further Bank of England tightening later this year.