FTSE 100 Underperforms as Germany Announces Major Fiscal Shift

European markets rally following Germany's commitment to significant defense and infrastructure spending.

On Wednesday, the FTSE 100 index closed at 8,755 points, registering a decline of three points, or less than 0.1%.

This downturn occurred as European markets experienced gains following Germany's announcement to revise its fiscal policies to facilitate an ambitious increase in defense and infrastructure investments, amounting to hundreds of billions of euros.

Germany's DAX index saw a substantial rise of 3.6%, reflecting a positive market response from domestic industrial and defense sectors.

France’s CAC 40 also advanced, posting a gain of 1.6%.

Frederique Carrier, head of investment strategy at RBC Wealth Management, characterized the proposed spending adjustments as 'seismic,' indicating a significant shift in the historically conservative fiscal approach of the German government regarding infrastructure expenditures.

In currency markets, the British pound rose 0.6% against the US dollar, reaching 1.2866, while it fell approximately 0.9% against the euro, trading at 1.1939.

Across the Atlantic, the S&P 500 index remained flat, whereas the Dow Jones Industrial Average increased by 0.3% by the time UK markets closed.

In corporate news, Capita, a UK outsourcing firm, reported a resurgence to profitability with a pre-tax profit of £116.6 million for 2024, following losses exceeding £100 million in the prior year.

The company attributed its recovery to a vigorous cost-cutting strategy and an accelerated implementation of artificial intelligence to enhance operational efficiency.

As a result of these developments, Capita’s shares surged 8.1% on Wednesday.

Among the biggest gainers on the FTSE 100 were Antofagasta, which rose by 110.5 pence to 1,820.5 pence, Fresnillo, increasing by 48.5 pence to 828.5 pence, and Melrose Industries, which climbed by 38 pence to 680 pence.

Other notable risers included ConvaTec, up 14.8 pence to 269.4 pence, and easyJet, gaining 26.6 pence to 504.8 pence.

Conversely, the biggest decliners on the FTSE 100 included Severn Trent, which fell by 113 pence to 2,399 pence, National Grid, down 38.4 pence to 933.6 pence, and Haleon, decreasing by 14.1 pence to 400.8 pence.

Additional fallers included United Utilities, down 31.8 pence to 944.4 pence, and Pearson, which dropped by 43.5 pence to 1,335.5 pence.