The FTSE 100 opened another session in the red on Thursday, extending its worst weekly run since the Silicon Valley Bank collapse. The Footsie fell 1.2% by mid-morning, dragged down by a rout in technology stocks that has erased nearly £200bn from London-listed tech and growth names this week. The pain is global, with the Nasdaq Composite plunging 3.4% overnight, its sharpest single-day drop since 2022. But in the Square Mile, the real anxiety is closer to home.
Investors are now pricing in a higher probability of a protracted conflict in the Middle East. The assassination of a Hamas leader in Tehran, allegedly by Israeli operatives, has shattered hopes of a ceasefire. Oil prices have surged above $82 a barrel, and the safe-haven dollar is strengthening against the pound. Sterling has fallen to $1.2750, its lowest level in a month, as capital flees risk assets.
The tech sell-off is a classic margin call. The AI bubble narrative has burst, with disappointing earnings from chipmaker ARM and a profit warning from darktrace sending shockwaves through the sector. ARM, a key bellwether for UK tech, tumbled 15% after its quarterly revenue missed estimates. Darktrace plummeted 22% after slashing its full-year forecast, citing weaker demand from US clients. This is not a correction. It is a revaluation. The market is finally realising that AI hype does not always translate into cash flow.
But the real story for the City lies in the bond market. The yield on the 10-year gilt has surged to 4.35%, its highest level since November 2023. This is not just a function of rising risk-free rates in the US. It reflects a growing fiscal credibility gap. The Chancellor’s fiscal headroom has evaporated, and the market is now pricing in a higher term premium to compensate for the UK’s structural budget deficit. The Debt Management Office will have to pay up to place new issuance. Every basis point adds to the interest bill, which is already running at over £100bn a year.
The Bank of England meets next week, and the doves at Threadneedle Street are in a bind. The market is now pricing in a 60% chance of a rate cut in August, down from 80% a week ago. Cutting rates into a geopolitical storm and sticky services inflation would be reckless. The headline CPI may have fallen to 2%, but core services inflation remains above 5%. The MPC must hold the line. Fiscal dominance is the new enemy.
Capital flight is accelerating. The Gold price has surged to a record $2,490 an ounce, as investors seek assets that cannot be printed by central banks. Bitcoin, despite its volatility, has also rallied above $70,000. The traditional hedges are working.
For the City, the mood is one of grim vigilance. The trading floors are quieter than usual, but the screens are flashing red. The macroeconomic backdrop is deteriorating. The consumer is weakening. And now the geopolitical premium is spiking. The risk of a full-blown correction is rising. The question is whether the real economy can withstand another shock. The answer, for now, is no.
In the words of a veteran bond trader I spoke to this morning: "We are caught between a hawkish Fed and a hard place. The only safe haven is cash." That sums up the mood in the City today. Red screens, rising yields, and a sense that the bill for years of loose monetary policy is finally coming due.
