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London open: Stocks dip, sterling rallies as Sunak set to be crowned PM
London stocks were trading down early on Monday, with sterling on the rise as former chancellor Rishi Sunak looked set to be crowned prime minister after Boris Johnson pulled out of the race.
At 0835 BST, the FTSE 100 was 0.3% lower at 6,952.54, unable to hold on to opening gains, as the pound rose 0.4% against the dollar to 1.1351. At the same time, government bonds rallied, with yields on the five and 10-year gilts down around 20 basis points.
In a statement on Sunday, former PM Johnson said he had the support to stand but that it would not be the right thing to do and that there needed to be a “united party in Parliament”.
That leaves Sunak and cabinet minister Penny Mordaunt in the running, with the former likely to be made PM as early as Monday.
Commons leader Mordaunt has the public backing of just 26 Conservatives MPs, whereas Sunak has the backing of 145. The candidates need to secure backing from 100 MPs out of a total 357 by 1400 BST on Monday in order to make it onto the ballot paper.
Richard Hunter, head of markets at Interactive Investor, said: “The current level of sterling of over $1.13 is a comfortable improvement to the level of 1.03 which it had briefly touched, but a rampant US dollar this year has eroded the price of the year’s opening level of $1.35.
“In spite of the possibility of some political stability being restored, the UK economy remains in a potentially dark place, and the FTSE 250 has served as a barometer with a drop of 26% this year.
“The FTSE 100, which has made a slight recovery to stand down by 5% in the year to date, opened cautiously positive in an important week for earnings. In particular, the banks showed some strength ahead of their reporting third quarter numbers which investors will scour for any further provisions in terms of bad debts, as well as slowdowns in both mortgage lending and investment banking (where applicable), as was seen in the recent updates from the US sector.
“In addition, updates from the likes of Shell, Unilever and WPP will provide further colour to pockets of the economy which have had differing fortunes of late, given the strength of the oil price, the defensive protection of household products and muted advertising spending.”
In equity markets, heavily-weighted miners were the worst performers, with Antofagasta, Rio Tinto, Anglo American and Glencore all weaker.
Asia-focused Prudential was the worst performer on the FTSE 100 following heavy losses in Asian markets.
On the upside, Auto Trader rallied after saying it had sold its Webzone subsidiary to Mediahuis Ireland for €30m.
Banks were also up ahead of third-quarter results this week, with Barclays, Lloyds and NatWest all in the black.
Educational publisher Pearson advanced after reaffirming its expectations for full-year sales and adjusted operating profit as it posted a 7% jump in third-quarter underlying sales.
Asos surged following a report over the weekend that Frasers Group has built a 5% stake in the online fashion retailer and become its fourth-largest shareholder.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Pearson Plc | +5.93% | +52.60 | 940.00 |
| 2 |  |
Auto Trader Group Plc | +3.41% | +16.60 | 502.80 |
| 3 |  |
Spirax-sarco Engineering Plc | +2.18% | +225.00 | 10,525.00 |
| 4 |  |
Rightmove Plc | +2.13% | +9.80 | 468.90 |
| 5 |  |
Sse Plc | +1.97% | +28.50 | 1,478.50 |
| 6 |  |
Lloyds Banking Group Plc | +1.82% | +0.76 | 42.14 |
| 7 |  |
Persimmon Plc | +1.72% | +21.00 | 1,239.50 |
| 8 |  |
Whitbread Plc | +1.71% | +44.00 | 2,613.00 |
| 9 |  |
Halma Plc | +1.59% | +33.00 | 2,107.00 |
| 10 |  |
Rentokil Initial Plc | +1.55% | +7.80 | 510.20 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Prudential Plc | -6.57% | -58.20 | 828.20 |
| 2 |  |
Antofagasta Plc | -3.92% | -45.00 | 1,103.00 |
| 3 |  |
Anglo American Plc | -2.56% | -70.00 | 2,664.00 |
| 4 |  |
Standard Chartered Plc | -2.19% | -12.40 | 554.60 |
| 5 |  |
Shell Plc | -2.13% | -50.00 | 2,294.00 |
| 6 |  |
Rio Tinto Plc | -2.06% | -99.00 | 4,706.00 |
| 7 |  |
Glencore Plc | -1.90% | -9.55 | 492.55 |
| 8 |  |
Bhp Group Limited | -1.77% | -39.00 | 2,161.00 |
| 9 |  |
Scottish Mortgage Investment Trust Plc | -1.66% | -12.40 | 735.80 |
| 10 |  |
Micro Focus International Plc | -1.59% | -8.40 | 518.60 |
US close: Stocks weaker amid earnings, UK PM resignation
Wall Street stocks reversed earlier gains to close in the red on Thursday, as investors continued to digest earnings and more political turmoil in Britain.
At the close, the Dow Jones Industrial Average was down 0.3% at 30,333.59, as the S&P 500 lost 0.8% to 3,665.78 and the Nasdaq Composite was off 0.61% at 10,614.84.
The Dow closed 90.22 points lower on Thursday, adding to the losses it recorded in Wednesday’s session.
“To use a phrase that has no doubt been exhausted in the past few weeks, markets don’t like uncertainty,” said AJ Bell financial analyst Danni Hewson.
“Losing another prime minister in the midst of a cost-of-living crisis is far from ideal.
“But Liz Truss’ credibility with markets was shattered when her former chancellor unveiled the mini-budget which effectively lit the touch paper on an explosive period for politics and demonstrated the importance of taking markets with you when it comes to fiscal policy.”
Hewson noted that sterling received a boost against the dollar on earlier speculation that the resignation was imminent, but added that the reality that Number 10 [Downing Street] was again in need of a new occupant led to minute-by-minute fluctuations.
“There are big questions to be answered and they need to be answered quickly.
“The Conservative party is promising a quick appointment within days, crucially ahead of the fiscal event scheduled for Halloween.”
Indeed, the resignation of UK prime minister Liz Truss after just 45 days in the job was the primary non-corporate focus earlier in the session.
Truss stood down from the role after policy u-turns, sackings and financial market collapses.
A leadership election will now take place but there were growing calls, not least from the opposition Labour Party, for a general election to be held.
On the macro front, Americans filed first-time unemployment benefits at a decelerated pace in the week ended 15 October, according to the Department of Labor.
New unemployment claims dropped by 12,000 to 214,000, well below market forecasts for a print of 230,000 and halting expectations of a loosening labour market.
Elsewhere, manufacturing production in the Philadelphia region deteriorated more than expected in October, with the Philadelphia Fed index for current manufacturing activity edging up one point to -8.7.
That was below expectations for a reading of, and was the fourth negative reading in five months.
Still on data, existing home sales slipped last month weighed down by fast-rising mortgage rates, led by declines in the more expensive regions of the US.
According to the National Association of Realtors, in seasonally adjusted terms, existing home sales shrank at a month-on-month clip of 1.5% to reach an annualised pace of 4.71m.
Economists had pencilled in a reading of 4.7m.
Finally, the Conference Board‘s leading economic index decreased by 0.4% to 115.9 in September, with its “persistent downward trajectory” suggesting that a recession was increasingly likely before the end of 2022.
In equities, telecommunications giant AT&T jumped 7.72% after posting third-quarter revenue and earnings on Thursday, beating Wall Street estimates thanks to solid growth in subscriber numbers.
Semiconductor plays were in the green as well, with Nvidia Corporation up 1.19% and Lam Research ahead 7.81%.
On the downside, American Airlines Group descended 3.79% despite beating adjusted earnings estimates for the third quarter, and confirming it expected to turn a fourth quarter profit thanks to a solid rebound in travel demand.
Tobacco giant Philip Morris International simmered 1.67% lower, even after it too beat third quarter estimates and raised its full-year revenue guidance.
Monday newspaper round-up: Asos, Interserve, Sunak
Online fashion retailer Asos is poised to confirm that the billionaire retailer Mike Ashley has built up a stake of more than 5% in the company. Asos’s statement to investors could come as soon as Monday morning, before the London Stock Exchange reopens after the weekend. – Guardian
Britain’s data watchdog has fined the construction group Interserve £4.4m after a cyber-attack that enabled hackers to steal the personal and financial information of up to 113,000 employees. The attack occurred when Interserve ran an outsourcing business and was designated a “strategic supplier to the government with clients including the Ministry of Defence”. Bank account details, national insurance numbers, ethnic origin, sexual orientation and religion were among the personal information compromised. – Guardian
Rishi Sunak is set to become prime minister after Boris Johnson dropped out of the race to be the next Conservative Party leader. In a 300-word statement issued on Sunday night, Mr Johnson said he had concluded that even if he could win the contest, he did not have enough support among Tory MPs to govern. – Telegraph
Central banks and regulators should loosen rules relating to collateral demands after the UK’s pension fund crisis to prevent further blow-ups in the financial sector, a leading ratings agency has warned. Paul Watters, head of European credit research at S&P Global, told The Times that regulators should aim to make it easier for pension funds, hedge funds and other market participants that use leverage to raise cash quickly in times of financial stress. – The Times
Investment bankers in the City of London are bracing themselves for swingeing jobs cuts this week when the new boss of Credit Suisse sets out his plan to revive the troubled group. Ulrich Körner, who took charge at the beginning of August, will reveal his strategy on Thursday. The group has already warned that it will involve shrinking the troubled investment bank and entail job losses that are expected to include roles in London, where Credit Suisse has a big investment banking presence and employs about 5,500 staff overall. – The Times
