The FTSE 100 Is Falling Before BP and Barclays Report, The City of London Is Bracing for Bad News

This week’s mood in the City seems heavier than the numbers would indicate. You can sense it when you stroll along Bishopsgate at half past eight: traders gathered around terminals, the customary line at Pret thinning out earlier, and the small talk in elevators giving way to incomplete sentences about Iran and gilts. The FTSE 100 has fallen to 10,240 once more, and it appears that London is quietly getting ready for an earnings season that no one wants to endure.

The names that everyone keeps bringing up are BP and Barclays. Both have been losing altitude and will be reporting shortly. As Brent crude fell back below $100 on Thursday alone, BP dropped 2.6%, undermining some of the optimism that had propelled oil majors higher just a few weeks prior. Even after reporting its highest quarterly profit in two years and increasing its dividend, Shell saw a 2.9% decline. That’s an interesting detail. When strong numbers are unable to boost a stock, it typically indicates that investors are looking past them and anticipating future developments. In BP’s case, the market then questions whether the buyback machine can continue to function if oil continues to drift.

The story about Barclays is more awkward. The shares saw a staggering 45% increase over the previous year before declining by about 10% since January. Due to a “deteriorating” UK outlook brought on by the Middle East conflict, Lloyds has already booked a £151 million impairment charge. This week, analysts at the Motley Fool cautioned that Barclays might be the next to suffer a similar setback. Of course, there is the investment bank to rely on, complete with high-margin fees and trading desks that sometimes thrive on chaos, but M&A activity seems to be holding its breath and corporate lending risk is increasing. Whether Barclays’ exposure to the US will serve as a sufficient buffer is still up in the air.

It’s not helped by the political environment. Voters in Britain went to the polls on Thursday, and preliminary results suggested that Labour would have a terrible night, with Reform gaining significant ground in unexpected areas. Bond markets took notice right away. After brushing 5.8% earlier in the week, the 30-year gilt yield hovered around 5.628%; three months prior, it was closer to 5%. You get the impression that Rachel Reeves’ meticulously built credibility is being put to the test as you watch this play out. To put it simply, once trust leaves bond investors, it doesn’t return on time, according to Dan Coatsworth of AJ Bell.

Although most strategists are quick to say that it isn’t that bad—yet—there is a lingering Liz Truss shadow over all of this. The “yet” is carrying a lot of weight. The bond vigilantes that everyone had forgotten about are obviously back at their desks, given that markets have already priced in two rate increases this year, sticky inflation, and constrained fiscal headroom. Sterling is experiencing range-bound trading, which typically precedes something more dramatic, as it is stumbling around $1.36 and unable to break out.

It’s difficult to ignore how multifaceted the anxiety has grown. a spike in the Middle East. Unrest during the election. Market Financial Solutions, a dubious mortgage lender, is slowly leaking fraud-related losses into the books of HSBC and Barclays. Morgan Stanley downgraded RELX. Despite reiterating its guidance, BAE Systems saw a nearly 5% decline. Even the positive developments, such as Helios Towers’ 14.3% increase and Autotrader’s successful activist bid, seem like diversion from the mainstream.

Next week, perhaps, the FTSE will rise. Perhaps Barclays avoids the worst of the impairment wave, or BP surprises everyone with a smaller cost base. However, those who have observed London markets long enough believe that the upcoming sessions are more important than usual. Oil, politics, and earnings are all coming in the same envelope, and despite its calm exterior, the City is unsure of which letter to open first.