Another session of stomach-churning volatility hit the Square Mile today, as the tech rout deepened and fresh tensions in the Middle East sent investors scrambling for cover. The FTSE 100 shed 1.2% in early trading, dragged down by a 3% slide in tech-heavy peers stateside, where the Nasdaq is on course for its worst week since the pandemic panic of 2020.
The catalyst? A double dose of fear. First, bond yields are spiking again, with the US 10-year punching through 4.5%, a level that historically spooks high-growth stocks. The tech sector, living on borrowed time and cheap capital, is now being repriced with brutal efficiency. Second, the overnight news from the Middle East suggests no diplomatic off-ramp is in sight, with oil prices already climbing 2% on supply disruption fears.
For the Chancellor, this is a fiscal nightmare. Every tick higher in gilt yields adds billions to debt servicing costs, and the market’s patience is wearing thin. Capital flight is becoming a real risk as global investors park money in safer havens. The pound is holding on by its fingernails, but make no mistake: this is a classic risk-off environment.
The question is whether central banks will step in with soothing words, but my guess is they will stay the course. Inflation is still sticky, and the last thing they need is a credibility crisis. So expect more pain ahead. The bottom line is this: markets are finally pricing in the true cost of geopolitical uncertainty and fiscal profligacy. It’s going to be a bumpy ride.
