The FTSE 100 breathed a sigh of relief in Friday’s session on reports the Chancellor has been sacked, igniting hopes of a broad reversal in the damaging mini-budget proposals and recovery in UK assets.
The FTSE 100 was trading at 6,908, up 0.85% at the time of writing while gilt yields fell.
Investors were attempting to price an increasing fluid situation on Friday with the Chancellor’s sacking raising questions about the future of the Prime Minister. Speculation was also mounting about who the next Chancellor would be, and what their approach would be to rethinking economic plans.
It was later confirmed Jeremy Hunt would step into Kwartengs shoes.
A group of senior Tories have been holding discussions + have decided the following: the sacking of @KwasiKwarteng will prompt them to come out publicly next week + call on @trussliz to resign. My source: “These are serious people. The PM will find it difficult to survive.”
— Nicholas Watt (@nicholaswatt) October 14, 2022
Some investors will be questioning whether today’s gains are simply a bear market rally and whether losses are set to resume as we move towards key central bank meetings in November.
The Bank of England is also set to end bond purchases today, risking potential choppiness in the very near term.
“There will be a long way to go and significant bridge building ahead before the UK risk premium disappears. The cost of government borrowing fell further earlier, with gilt yields dropping as speculation swirled that there would be a change at the Treasury, an indication that investors in the UK might welcome this change to the front seat line up,” said Susannah Streeter senior investment and markets analyst, Hargreaves Lansdown.
As we reported earlier this week, the FTSE 100 UK banks and housebuilders are traders’ equity proxies for the UK’s economic and political outlook. Both sector rose following the sacking of Kwasi Kwarteng but are likely to remain volatile in the coming sessions.
Lloyds, Natwest and Barclays gained as did housebuilders Persimmon, Barratt Developments and Taylor Wimpey. A reversal in the mini-budget proposals has the power to ease pressure on the mortgage market and household spending.
Ocado was the top riser on speculation M&A activity in the US may see bids for the online retailer. UK plc will likely once more become the target of US private equity after a sharp drop in the pound.