FTSE 100 hits record and outperforms peers, as next and Oil majors lift index

The FTSE 100 made a fresh record high this morning, as the New Year rally continues in the UK. Interestingly, the wider picture for financial markets is more nuanced on Tuesday after a strong start for 2026. European stocks are weakening today and US futures are also pointing to a lower open. The S&P 500 e-mini future is pointing to a mild loss for the main US index later today.

There has been mixed news from the UK on Tuesday including a strong Christmas trading update from Next and a weaker than expected final reading for the December service sector PMI.

Next reports strong Christmas trading, but doubts about M&S weigh on share price

Next is one of the top performers on the FTSE 100 today and is higher by more than 2% after it lifted its full year profit guidance. It stated that sales rose by more than 10% in December, and clearance sales also performed well. Although the company issued cautious guidance for 2026 based on fears that rising unemployment could weigh on consumer sentiment, the market is brushing off Next’s tone of caution, for now.

Next is the tide that is raising consumer boats this morning. There are strong stock market gains for Tesco and Sainsbury’s, which also report sales results for the Christmas period later this week. M&S will also report December sales data on Thursday, and the focus will be on whether its food sales were hit by rising food price inflation last month. M&S’s share price is down more than 0.6% on Tuesday and is bucking the trend set by Next. Overall, UK grocery sales over the Christmas period rose by 2.5% YoY according to Neilson, which is considered quite lackluster by this market. Thus, M&S will have to produce a strong trading update to turn around the share price, which has been struggling in the past month and is down by 5.4%.

Weakening UK PMI, but pockets of strength as new demand picks up

UK PMI’s are also in focus, after the service sector PMI and the composite PMI were both revised lower for December. The service sector PMI fell to 51.4 from 52.1 initially. This is a slight increase from the November reading of 51.3, but it suggests that consumer confidence remains sapped after last year’s Budget, which could weigh on Q4 growth.

S&P Global, who compiled the survey, found that although service sector activity was in the expansion zone for the 8^th successive month, the increase in activity was marginal, and it remained well below its long run trend of 54.2. Although survey respondents pointed to challenging business conditions and political uncertainty as a major hindrance to their business, there was also a pickup in new orders, which suggests there are improved sales pipelines for both domestic and export markets. New business from overseas expanded for the first time in 3 months, and there was evidence of new business from the US, in particular, which suggests that the impact of US tariffs on UK exports are starting to wane.

Employment and price picture remains bleak for the UK

The employment picture remains weak for the UK service sector, with 21% of respondents reporting a decline in employment, and only 12% reporting an increase. This suggests that there could be upside pressure on the unemployment rate in the coming months. The price component also rose, linked to faster wage growth, and greater fuel costs, and the rise of input inflation rose at its fastest pace since May. This suggests that the Prime Minister’s plan to reduce cost of living pressures for the public could already be in jeopardy if businesses pass on cost increases to the consumer. Thus, the PM may be wise to focus on costs for business if he wants to lower the cost of living for consumers.

Overall, the UK PMI has added downside pressure to the pound, which has fallen back from its earlier highs, although GBP/USD remains comfortably above $1.35 for now. The upside pressure on input price inflation noted in the December survey could limit GBP downside, as it makes the outlook for UK monetary policy less clear: how does the BOE react to a weakening economy at the same time as cost pressures are rising? BOE communication in the coming weeks will be pivotal for interest rate expectations and the pound.

Energy sector helps power FTSE 100 to fresh record high

The FTSE 100 is also being led higher by the energy sector, and the oil majors BP and Shell are rising by more than 1% so far today. This has helped push the FTSE 100 to a fresh record high above 10,000 and it is also one of the reasons why UK stocks are outperforming their European peers today.

The energy sector has been given a boost by the continued rise in the oil price, which is shrugging off the prospect of extra supply from Venezuela for now and instead focusing on the potential for the supply glut to ease later this year as Opec + scales back its production increases. The oil price rose by the most in a week on Monday, as immediate events in Venezuela are adding a small risk premium to oil prices, as investors believe that it will take many years before new Venezuelan oil supply will come on board.

US Oil majors provide boost to European peers

UK oil majors are also benefitting from interest in their US peers. US oil majors rose sharply on Monday as the market priced in US oil companies benefitting from the deposing of the Maduro administration in Venezuela. As we have mentioned, it will take many years before Venezuela can pump large quantities of oil again, so the upward impact on oil stocks could be short lived. Although BP and Shell are rising today, the gains for US oil majors in the pre-market are lower than Monday. Thus, it is worth watching the oil majors in the US to see where UK oil firms go next, as they could trade in a block in the near term. It is also worth noting that Shell will release its trading update at the end of this week.

Ahead today, the focus will be on whether the global new year stock market rally can persist beyond the first day of the first full trading week of the new year.