UK Gilt Yields Threaten Reeves’s Fiscal Rule Ambitions

UK government borrowing costs have surged, making it unlikely that Finance Minister Reeves will meet her target of balancing day-to-day spending by 2029-30, despite efforts to rebuild a £9.9 billion fiscal buffer. Wall Street’s earlier gains have reversed, with the Dow turning slightly negative and gold jumping 16% year-to-date to reach record highs. Meanwhile, Germany is set to pass a €500 billion infrastructure and defense spending plan, boosting market confidence and Chancellor-in-waiting Friedrich Merz.

Equities

The FTSE 100 ended flat on Thursday, closing with little change after the Bank of England held interest rates steady at 4.5%. Policymakers warned against expectations of early rate cuts, citing growing uncertainty in the economic outlook. The FTSE 250 fell 0.1%.

HSBC dropped 2.2% following a report that the bank is in advanced talks to sell its German fund administration business to BlackFin Capital Partners. Compass Group fell 3.7% after competitor Sodexo cut its profit forecast. Investment firm 3i slipped 3.3% after it disclosed slower like-for-like sales growth at its portfolio company Action. Investec shed 5.4%, pulling down the FTSE 250, after its annual profit guidance disappointed investors.

Across the Atlantic, the Dow Jones Industrial Average dipped 0.03% to 41,953.32, while the S&P 500 lost 0.22% to 5,662.89 and the Nasdaq fell 0.33% to 17,691.63. Losses came after markets spent the day fluctuating in response to fresh economic data and concerns about the impact of tariffs.

Weekly jobless claims rose slightly to 223,000, while a leading indicator of future US economic activity declined by 0.3% in February. Investors continued to assess the implications of the Federal Reserve’s latest statement, which kept rates unchanged and reaffirmed expectations for two cuts later this year.

Accenture shares fell 7.3%, marking their worst daily drop in a year. The consultancy firm said efforts by the Trump administration to cut federal spending have led to the cancellation and delay of several contracts. On the other hand, Darden Restaurants climbed 5.8% after the Olive Garden owner posted strong earnings and provided an upbeat outlook, downplaying concerns about tariffs.

Forex & Commodities

The US dollar rose for a second straight day, gaining 0.21% to 104.01 on the dollar index, following its strongest single-day rise in three weeks. The move came after the Federal Reserve held interest rates steady and signalled two rate cuts later this year, while also warning it is in no hurry to begin easing. Fed Chair Jerome Powell cited ongoing uncertainty, including the impact of new tariffs expected to be announced by President Trump on 2 April. The dollar climbed 0.42% to 149.40 yen after the Bank of Japan left rates unchanged and delivered a cautious economic outlook. Sterling fell 0.19% to $1.2943, and the euro weakened 0.18% to $1.0831.

The Australian and New Zealand dollars extended Thursday’s losses. The Aussie slipped 0.21% to $0.6290 after falling 0.86%, while the New Zealand dollar edged down 0.13% to $0.5750 despite data confirming the country exited recession last quarter. Both currencies came under pressure amid renewed tariff concerns and a stronger US dollar.

Gold eased 0.5% to $3,028.77 an ounce after hitting a record high of $3,057.21 on Thursday. Bullion prices remain up around 1.5% for the week, supported by safe-haven demand and Fed rate cut expectations. US gold futures slipped 0.3% to $3,035.70. Despite the day’s pullback, gold has reached record highs 16 times this year, with four daily closes above $3,000.

Oil prices continued to rise, with Brent crude up 0.2% to $72.14 per barrel and WTI gaining 0.2% to $68.23. Both benchmarks are on track for a second consecutive weekly gain of around 2%. Markets were reacting to new US sanctions targeting Iranian oil shipments to China and an OPEC+ agreement to implement further output cuts from April through June 2026.