The UK stock market was flat despite positive GDP news.
The FTSE 100 is not a direct play on the UK economy given the multitude of overseas earners. The flat performance was a result of gains in financials and industrials being offset by weakness in oil producers and miners.
Brent crude fell by 3.2% to $64.40, a substantially larger movement than one might expect on the commodities market for an average day. Investors took stock of events in Iran and responded to comments by Donald Trump that implied tensions around anti-government protests had eased.
Financial markets took those comments to mean there was less of a chance the US takes military action against Iran, and therefore a lower risk of disruption to oil supplies. The pullback in the oil price has a direct impact on shares in oil producers, with BP and Shell both in the red.
GDP
Better than expected UK GDP growth in November is welcome news for the new year. While partially helped by Jaguar Land Rover getting back to work after a cyber-attack, the increase in services activity shows there is more to the GDP progression than just restarting car production.
It’s also positive to see GDP growth for a month where business and consumer decisions might have been put on ice pending the Budget.
The GDP expansion is positive, yet UK economic activity is still pedestrian overall. There is still a reticence by many businesses to invest heavily, and that is evident by a fragile jobs market.
Chancellor Rachel Reeves has long said that tough decisions in the near-term should pave the way for a stronger economy down the line. We’re still in the waiting game for that strategy.
Dunelm
There’s not much to cushion the blow for investors from homewares specialist Dunelm’s soggy Christmas update, particularly given it has prompted the company to issue a profit warning.
The company reported sluggish festive sales, potentially not helped by a Budget-inspired slowdown in the property market which will have meant fewer people were looking to spruce up their new home with curtains or soft furnishings.
While the backdrop has been genuinely unhelpful and competition has been fierce, Dunelm has also been the master of its own downfall in some areas.
Availability issues with furniture have been a significant issue for the business. A key tenet of retail is making sure you have the right products in the right place at the right time and at the right price point for shoppers. Get this bit wrong and any retailer is likely to run into problems.
When you add to the mix the pressure from rising costs, Dunelm has it all to do to improve performance and rebuild its credibility with the market.
TSMC
After last week’s revenue update it was an open secret that TSMC would be reporting a record quarter but the details are still striking.
Not least the levels of capital expenditure TSMC is committing to, suggesting it is fully confident the AI boom has legs. This is underlined by the company’s guidance for 30% growth in 2026.
TSMC’s dominance of the chip manufacturing space has enabled it to capitalise on the huge expansion in AI spending in recent years. This has compensated for the easing revenue associated with chips used in consumer electronics.
Beyond a broad-based slowdown in the AI space, the main risk looming over TSMC relates to its position in a geopolitical hotspot at a time when the world has become uncertain.
However, given TSMC has no rivals with anywhere near its scale and level of expertise, it is difficult for customers to diversify their supply chain even if they wanted to.
Taylor Wimpey
Taylor Wimpey looks like it could do with a boost from falling mortgage rates in 2026 after serving up a downbeat update.
The housebuilder is seeing muted demand among first-time buyers which has an inevitable impact on the broader market, and trading in general is struggling to shake off the post- and pre-Budget blues.
Margins remain under pressure and the boost from land sales in 2025 is a double-edged sword as it is not expected to repeat this year. Profitability across the housebuilding sector is still a long way from the most recent peak in 2021.
Taylor Wimpey did express confidence in its medium-term prospects, but the danger is the market will take little notice given the bleak near-term outlook.
Asda
Dan Coatsworth, Head of Markets at AJ Bell, comments:
There are red flags from negative movements in Asda’s bonds and loans, indicating a loss of investor confidence in the business.
Prices have dropped on various Asda-linked credit instruments following a tough Christmas for the grocer. It was the runt of the litter for festive takings, compounding problems that stem back several years. Asda has suffered a notable loss of market share since 2024 as rivals found their groove and grew bigger.
Asda’s stores have suffered from underinvestment since being owned by private equity and the business has an inconsistent strategy. For decades, Asda was the go-to place for shoppers looking for low-priced products. The rise of Aldi and Lidl presented a serious competitive challenge and then Tesco and Sainsbury’s decided to go hard on the value side of food as well. Even Marks & Spencer got in on the game.
Asda has spent the past few years treading water trying to stay afloat while its rivals swam ahead. It has shown ambition to fight harder on price, but so far, the efforts haven’t been fruitful.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
