The FTSE 100 climbed to a 10-week high of around 128 points above the previous close at lunchtime before gains began fading through the afternoon session.
Heavyweights including Diageo, AstraZeneca, BP, Unilever, GSK and National Grid all retreated, dragging the index well off its intraday peak as the session progressed.
The biggest individual fallers included Smith and Nephew, Entain, Vodafone, Burberry, BT and Airtel Africa, compounding the drag from large-cap defensives and consumer staples.
Rising government bond yields on both sides of the Atlantic added to the cautious tone, with housebuilders Persimmon and Barratt Redrow also slipping following reports of a £4.5 billion lawsuit over claims they overcharged buyers.
Defence stocks surged after outgoing Prime Minister Keir Starmer confirmed a £15 billion increase in military spending at BAE Systems’ Malloy Aeronautics drone factory in Berkshire.
Starmer said the government’s Defence Investment Plan would “transform our armed forces” and give them “the funding and equipment they need to fight and defend our nation,” with more than £5 billion earmarked for drones over four years.
Chemring led defence sector gains with a 5.8% jump, while Melrose rose 3.4%, Rolls-Royce added 2.7%, Babcock gained 2.3%, QinetiQ climbed 2.1% and BAE Systems rose 1.5%.
Culture Secretary Lisa Nandy said she is “minded to intervene” in the proposed $110 billion acquisition of Warner Bros Discovery by Paramount and Skydance, citing concerns over media plurality and news sector ownership concentration.
Nandy stated that any potential intervention would be based on public interest considerations, including ensuring “a sufficient plurality of views in news media” and “a sufficient plurality of persons with control of the media enterprises.”
Barclays purchased its Canary Wharf headquarters at One Churchill Place for £750 million, securing a 999-year lease from Canary Wharf Group to provide long-term certainty over occupancy costs.
Chief executive CS Venkatakrishnan said: “This acquisition gives us long-term certainty, greater flexibility over our London footprint and reinforces our continued confidence in London as one of the world’s leading global financial centres.”
Segro rejected a revised takeover proposal from US logistics giant Prologis, with chairman Andy Harrison saying: “Prologis is trying to acquire SEGRO on the cheap when our share price has been dislocated by the Middle East conflict.”
Harrison added that the board unanimously rejected the proposal “because we continue to believe our compelling standalone investment case can deliver superior shareholder value.”
The FCA published new rules requiring crypto firms to hold capital against risky assets and carry out annual stress tests, with the regulations due to come into force in October next year.
FCA executive director David Geale said: “For the first time, we’ve got a comprehensive regulatory framework for crypto in the UK, one that covers how firms trade, how they hold assets, serve consumers and manage risk.”
Sainsbury’s shares rose around 2% after the supermarket reported total retail sales excluding fuel up 2.7% in the 16 weeks to 20 June, with grocery sales climbing 3.6% and online grocery sales surging 12.5%.
Analyst Clive Black at Shore Capital said: “With a Q2 tailwind, the bottom end of the current guided underlying earnings range may yet be raised.”
On Wall Street, the Dow rose 0.1% to 52,229, while the S&P 500 added 0.3% and the Nasdaq gained 0.6%, led by semiconductor stocks including SanDisk, AMD, Lam Research and NVIDIA.
Kenny Polcari at SlateStone Wealth said recent equity weakness was “not a funeral for AI” but rather quarter-end rebalancing, adding that “the rebalancing by pension funds, institutional asset managers and sovereign wealth funds is just about complete.”
Market analyst Kathleen Brooks noted Q2 highlights including an 88% gain for the Philadelphia semiconductor index, a 22.5% gain for the Nasdaq and a 59% gain for South Korea’s Kospi, while the FTSE 100 managed only a 3% gain over the same period.
