FTSE 100 plays sidewinder after BoE rate cut chatter, as defence sector gets Nato boost

• FTSE 100 up 13 points to 8,787
• Miners drag after weak China data
• OECD cuts outlook for global growth, UK and US too
• British American Tobacco lifts full-year outlook  

4.59pm: FTSE finishes in positive territory

The FTSE 100 Index edged up 0.2% to 8,787, gaining 13 points on the day.

4.16pm: FTSE tightly wound

Since midday, the FTSE 100 has remained tightly wound around the flatline today, like the tendril of a climbing plant. 

Centrica and Airtel Africa are top of the leaderboard, up 4.1% and 3.3%, followed by aerospace pair Melrose and Rolls-Royce, both up over 2%, and BAE Systems just behind, up 1.8%, with Babcock adding another 1.3% after yesterday's big rise.

As mentioned in more detail below, further rises to defence spending are expected at the forthcoming Nato summit.   

US-facing Ashtead, Polar Capital Technology Trust and Pershing Square are next, along with oil giant Shell as oil prices perk up, with Brent crude up 1.7% at $65.7 a barrel. 

BAT, after its half-year trading update this morning gained little early reaction, is now up 1.4%. 

Similarly, on the FTSE 250, Chemring is up 6.9% after its results earlier and some bullish broker comments. Sector peer QinetiQ is up 2.4%.

Fallers are led by Pearson after the educational publisher was hit by read-across from Australia’s IDP Education warning about a drop in testing volumes.

Housebuilders are also lower after a profit warning from one of the sector's mid-cap players.  

3.36pm: UK's new defence spending pledge still too low for Nato  

While PM Keir Starmer only yesterday confirmed his pledge to increase defence from its current 2.33% of GDP to 2.5% by 2027 and 3% in the next parliament, reports today suggest the UK will need to lift this to 3.5% of GDP by 2035 under new Nato requirements.

An upcoming Nato summit is set to see the 3.5% commitment agreed, as well as 1.5% of spending on cyber, intelligence and military-related infrastructure, as part of Nato secretary general Mark Rutte's plan to keep the US on board.

Citing senior defence sources, the Guardian reported that Britain would sign up to Rutte's proposal, which would represent a £30 billion increase in spending in real terms.

On Monday, Starmer said in a media Q&Q that “there are discussions about what the contribution should be going into the Nato conference in two or three weeks’ time”.

Rutte said last week that the summitt in The Hague "will agree on a high defence spend target of in total 5%". 

There's going to be a fun game identifying the most ridiculous item a European country tries to classify as defence spending. Looking forward to the Future Warrior Competency Initiative (kindergarten) and the Effective Troop Transport Framework (filling potholes) soon. https://t.co/X7dh526TxO

— Mike Bird (@Birdyword) June 3, 2025

3pm: Wall Street mixed, Constellation boosted by Meta deal 

US stocks have had a mixed start, with the Dow Jones down 0.1% but the Nasdaq is up 0.25%, with the S&P 500 flat.  

Constellation Energy Corp is the top Nasdaq riser, up 6.9% after Meta Platforms signed a 20-year agreement to purchase nuclear energy from its Clinton Clean Energy Center in Illinois.

Chipmakers are a bigger force, with Nvidia, Broadcom, ARM Holdings and Microchip Technology all up at least 1%.   

Fallers on the Dow are led by Coca Cola and Verizon, followed by Procter & Gamble, Nike and Visa. 

In London, the Footsie has just flattened off after a few hours in positive territory. 

2.32pm: BAE subs impact

For BAE Systems PLC (LSE:BA.), analysts at Citi ran the numbers on yesterday's UK Strategic Defence Review's recommendation that the Royal Navy has a fleet of 12 nuclear-powered attack submarines, up from the current seven Astute boats.

At an estimated £2 billion or so apiece, the new subs will be made at around 10% profit margins for BAE, and the five incremental boats could bring in rougly £1 billion of incremental consensus profit over the next 10-20 years, analyst Charles Armitage calculates.

Discounting this back, he estimates the consensus net present value could be "in the order of 10p per share" for BAE.

Shares in the defence giant are up 1.9% so far today. 

1.27pm: When America sneezes...

UBS has flagged that recession risks in the United States are quietly ticking higher again, and while nothing’s broken yet, the cracks are starting to show and are worth watching for investors in the UK.  

Analysts at the Swiss bank have been tracking three main recession indicators: real-world data, credit conditions and the shape of the US yield curve.

And all of them are moving in the same direction. Not alarmingly so, but enough to suggest the so-called “soft landing” might not be the final word on the story.

12.50pm: UK small caps outperform

Small-cap UK stocks outperformed their large-cap peers during May, but remain stuck in the valuation doldrums says analyst Rob Sanders, who stresses that "UK equities, especially at the smaller end, remain undervalued".

This isn’t a new idea, but it’s one that keeps ringing true.

While indices like the FTSE 250, AIM and the FTSE Small Cap all gained more than the FTSE 100 last month, they still trail over the past year.

The FTSE Fledgling and AIM All-Share, for example, posted monthly gains of more than 8 per cent in May, but they’re still well off the pace over a longer timeline.

12.37pm: BoE comments provide boost

The pound is down 0.3% after comments from Bank of England officials signalled further interest rate cuts could be on the cards, provided wage growth continues to ease. It could be giving the FTSE a lift too.

Governor Andrew Bailey told MPs he supported last month’s cut to 4.25% largely because the labour market had cooled and businesses were preparing to offer lower pay rises.

“We’ve got a view which is that we will see pay coming down this year,” he said, adding that this would be “crucial” for future rate decisions.

Deputy governor Sarah Breeden echoed that view, saying there was already enough evidence of a softer jobs market to justify a cut, while Catherine Mann, who has voted for both rate cuts and hikes this year, warned that persistent volatility in markets and rising inflation could still alter consumer behaviour.

11.59pm: Stocks mostly in the red

US stock futures are in the red, joining most European benchmarks -- apart from the FTSE, which is up slightly.

Miners continue to drag on the London index but gains from the defence sector, tech investors and utilities are providing some upward force. 

Sentiment within Europe has been "directly impacted" by China manufacturing data, says market analyst Josh Mahoney at Rostro, with the collapse in the Caixin manufacturing PMI "highlighting a slowdown in global economic activity as a result of Donald Trump’s tariffs".

Nonetheless, despite concerns around economic activity in the world’s second largest economy, US Treasury Secretary Scott Bessent has alluded to a potential call between President Trump and Xi Jinping this week.

"This provides optimism over a breakthrough in trade negotiations that could further lower tariffs or encourage trade," says Mahony. 

Analayst are also talking about another likely ECB rate cut on Thursday as the latest eurozone inflation data shows further improvement.

"While the Fed are hamstrung by concerns over tariff-led inflation pressures, the eurozone has seen headline CPI drop below 2% for just the second time in four-years," says Mahony. 

Looking ahead, today brings the first insight into the US jobs market for the week, with the JOLTS job openings report an early entree before Friday’s jobs report.

"Markets will be watching closely for signs of weakness that could drive a more dovish narrative given last week’s 0.1% core PCE release.

"With treasury yields falling back over the past week, we are seeing some of the concerns around rising debt obligations ease to the benefit of equity markets.

"With that in mind, traders will be keen to see whether the jobs data released this week provide further downward pressure on yields and borrowing costs."

11.05am: Lobbying for investment trusts

A new report about investment trusts is being launched in the House of Commons today by the Association of Investment Companies (AIC), with a foreword by Dame Julia Hoggett, CEO of the London Stock Exchange.

The report, entitled ‘Investment companies: bridging the gap between investors and markets’, is focused on the billions of pounds that investment companies invest in renewable energy infrastructure, UK smaller companies and private companies.

A parliamentary reception, hosted today by Baroness Bowles, is being held to launch the report, with this location and the subject of the report indicating that the AIC is lobbying for investment trusts to get some political recognition and support following the Mansion House Accord signed last month by 17 major pension funds, who have commited to allocate 10% of their workplace pension investments into private assets by 2030.

"Investment companies are a perfect match for today’s investment objectives," says Bowles. "They offer investors diversified portfolios that can be traded quickly on the stock exchange, without the underlying assets having to be cashed in. That means they can provide stable, long-term investment, perfect for infrastructure, just what the economy needs and ideal for pensions and ISAs."

AIC chief executive Richard Stone says investment trusts "can do even more, given the right legal and regulatory environment".

10.14am: ECB rate cut incoming as inflation falls

Eurozone inflation has come in below target at 1.9% for May, good news for the European Central Bank as it meets this week.

Core inflation also retreated to 2.3% last month.

"This seals the deal for this week’s rate cut, with a 97% chance priced in by the interest rate futures market," says Kathleen Brooks at XTB.

The euro has "withered", with the EUR/USD down 0.2% to testing $1.14.

"Weaker inflation in the Eurozone is the sign of economic slowdown, and it is in contrast to elsewhere, including the UK and US."

9.50am: European blue chips in the red

The FTSE 100 has slipped lower after an initial positive start seems to have worn off, with the London index joining continental European benchmarks in the red. The German DAX is down 0.2% and the French CAC 0.4% lower.  

Miners have fallen further, and been joined by declines for Pearson, Rentokil, Persimmon, Standard Chartered, HSBC and BT. 

The gold price is slightly softer but still relatively elevated at $3,361 an oz, while Brent crude oil is slightly higher at $64.8 a barrel. 

Miners are down due to soft manufacturing data out of China, says market analyst Neil Wilson at Saxo, as this has dragged on copper, iron ore and other industrial metal futures.

China's manufacturing PMI fell to 48.3 in May, its lowest since Sept 2022, with the report highlighting uncertainty from uneven and changing tariffs, complicating supply sourcing. 

"China figures and warnings from the OECD seemed to take the shine of things in London," says Wilson. "Having rallied about a quarter of a percent early doors on Tuesday after finishing flat on Monday, once again testing the 8,800 handle, weakness in miners like Rio Tinto, Glencore and Antofagasta helped shift the needle to the downside."  

On the big picture, Wilson says: "Gold up, stocks up – dislocations in markets continue to evidence a sense of uncertainty. But global M2 money supply from central banks hit a fresh record – things are looser than they look even if bond yields are higher, with the US 30yr Treasury yield again touching 5% yesterday and the 30yr real rate at 2.8%, its highest since the Global Financial Crisis.

"Little wonder gold is on track for its largest ever inflow this year. Meanwhile we are witnessing the dollar rapidly weakening again, with the dollar index sub-99, approximately 10% lower YTD and still 15% overvalued, according to Goldman Sachs."

9.11am: Housebuilder warning hits sector shares

Shares in MJ Gleeson (LSE:GLE) have dropped 21% after the housebuilder issued a profit warning, which has hit shares of other larger names in the sector.

Operating profit for the year to June 2025 is now seen falling up to 20% short of expectations.

The company said profit margins at its Gleeson Homes division had been hit by a combination of rising build costs, flat sale prices, increased use of buyer incentives and several bulk sales. As a result, gross margins will be around 1 percentage point lower than previously guided.

On the FTSE 250, Vistry is down 4.1%, Crest Nicholson 2.3%, while on the FTSE 100 Persimmon and Barratt Redrow are both down more than 1%. 

8.50am: An AIM IPO

We have a new AIM company: Sundae Bar Plc, a company that says it is "creating a marketplace for AI agents" branded sundae_bar.

It has floated on London's junior market after raising £2 million in an initial public offer at 8p, and the shares have jumped 25% to 10p in early trading. 

One of the names behind the company will be pretty familiar to AIM followers: non-exec chair of the company is Canadian serial entrepreneur Jonathan Bixby.

You may remember him from businesses such as Argo Blockchain, Cel AI and Cykel AI. His chief executive here is Jill Kenney, former director of media and communications for Red Bull Canada.

8.33am: OECD downgrades global growth due to tariffs

Global growth is likely to slow in 2025 and 2026 as US tariffs slam the brakes on the world economy, the Organisation for Economic Cooperation and Development (OECD) has warned.

The OECD has also urged the UK to pursue "fiscal prudence", ie raise taxes and cut public spending, with the country's growth downgraded due to the impact of Donald Trump’s trade war.

While UK growth strengthened in the first quarter, "momentum is weakening, with business sentiment rapidly deteriorating", the OECD Economic Outlook said, predicting GDP growth of 1.3% in 2025 (down from 1.4% in March) before slowing to 1.0% in 2026 (down from 1.2%), "dampened by heightened trade tensions, tighter financial conditions, and elevated uncertainty".

"Inflationary pressures will initially linger, due to higher import prices and robust wage growth in 2025, but subside over 2026, as spare capacity emerges and the labour market loosens. Substantial debt interest payments will continue to weigh on the fiscal balance and push up public debt."

"Consumer confidence remains depressed and has declined since the second half of 2024, while retail sales volumes have been volatile, with an uptick in March. Gilt yields have risen significantly in recent months, partly reflecting global developments.

"The labour market continues to cool, as falling vacancies are bringing the vacancy-to-unemployment ratio back to pre-pandemic levels. Increases in the national minimum wage, in employer social security contributions, and in utility bills kept services price inflation elevated, at 5.4% in the year to April, and maintained substantial domestic price pressures, with CPI inflation at 3.5% over the same period."

Global GDP growth is expected to slow from 3.3% last year to 2.9% this year and in 2026, on the assumption that tariff rates as of mid-May are sustained despite recent legal challenges.

Its March outlook had forecast 3.1% global GDP growth in 2025, slowing to 3.0% in 2026.

"Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.

"Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices."

8.27am: Thames Water partner walks away

Thames Water could be on the verge of being renationalised after its preferred funding partner, US private equity giant KKR, has decided to walk away.

KKR, which was selected by the water company as "preferred partner" in March, has now "indicated that it will not be in a position to proceed", Thames said in a statement.

Thames Water chairman Sir Adrian Montague said: "Whilst today's news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.

8.14am: FTSE 100 opens higher

The FTSE 100 has opened slightly higher, up 13 points to 8,787. 

Top risers are Brtish Gas owner Centrica PLC (LSE:CNA) and defence giant BAE Systems PLC (LSE:BA.), up 2.6% and 1.3% respectively. 

Miners are dragging though, with Glencore PLC (LSE:GLEN) down 2.2%, followed by Rio Tinto and Antofagasta.  

British American Tobacco PLC (LSE:BATS) is down 0.4% after its first-half trading update. 

7.54am: Chemring backs outlook

Chemring Group (LSE:CHG) has held the line on its full-year guidance and upped its interim dividend 4% as it turned in a mostly positive set of first-half results.

A record first-half order book of £1.3 billion was reported by the provider of defence and security countermeasures, sensors and cyber intelligence solutions, despite a slowdown in sensors orders that it mostly blamed on the delayed UK Strategic Defence Review (SDR), which came out yesterday. 

Group revenue of £234.3 million was up 5%, as overall order intake rose 42% to £488 million.

Underlying operating profit increased 8% to £27.1 million, while statutory operating profit jumped 69% to £29.5 million. 

7.31am: BAT ups outlook as new products improve growth

The trading update from British American Tobacco PLC (LSE:BATS) looks pretty good, as it has nudged its full-year outlook higher.

Product innovation is helping growth return in the US despite a continued impact from rival 'illicit' vaping products, with the FTSE 100 nicotine delivery specialist (my term) saying it expects growth of 1% to 2% for 2025, slightly ahead of its prior guidance, enanbling growth of adjusted profit from operations of 1.5% to 2.5%.

Growth in the US is set to return for both revenue and profit in the first half and full year, supported by improvements in its Combustibles business – ie cigarettes – and the launch of its Velo Plus nicotine pouches.

Revenue from its New Category products is expected to grow at a low-single digit rate in the first half, accelerating in the second half as new products are rolled out in key markets.

7.15am: FTSE 100 tipped for gains

The FTSE 100 has been tipped to make modest gains on Tuesday morning, following Wall Street stocks' fight to a positive finish overnight but with market sentiment remains far from upbeat. 

London's blue-chip index has been called 14 points higher on futures markets, after yesterday adding just under 2 (two) points to finish at 8,774.26, thanks to gains for defence companies, precious metals miners and insurers.

More defence sector news is on its way with Chemring's results today. 

Overnight, US stocks closed higher after starting the day in red, despite underwhelming manufacturing data, with energy and tech stocks lifting the S&P 500 to a 0.4% gain, while the Nasdaq finished 0.7% higher and the Dow Jones up 0.1%.

Asian stocks are mixed this morning, with Japan's Nikkei just above flat, India's Sensex down 0.35% but Hong Kong's Hang Seng rebounding 1.3% to recover from yesterday's losses. 

Mainland Chinese markets have resumed trading in positive territory after a long weekend, with analysts at Deutsche Bank saying they have perhaps been boosted by US Press Secretary Leavitt last night suggesting that presidents Trump and Xi could still speak as soon as this week.

5am: What to watch on Tuesday 3 June

An update from British American Tobacco PLC (LSE:BATS) arrives with shares swirling near two-year highs despite its most recent statement having disappointed the market.

Some analysts see the progress in its transition to a 'smokeless' group as underappreciated by the market, even with the 40%-plus gains for the shares over the past year.  

Defence group Chemring Group (LSE:CHG) reports interim results with its shares having rocketed 45% higher so far this year to a 14-year high, helped by expectations for increased European spending on security.

The mid-cap, which specialises in making decoy countermeasures, was thought to have been approached by a US suitor earlier this year with a possible offer of around 390p, but nothing has since emerged apart from news of new contract wins, and the shares this week hit 499p - the highest since 2011.

Announcements due:

Trading updates: British American Tobacco

Interims: Chemring, Chesterfield Special Cylinders, Gooch & Housego

Finals: Engage XR Holdings, FD Technologies, Pennon Group, Theracryf

Overseas earnings: CrowdStrike, HPE, Dollar General and Signet Jewelers

Economic announcements: Unemployment Rate (EU), Factory Orders (US)