- FTSE 100 in volatile mood as PM, Liz Truss resigns
- Former chancellor, Rishi Sunak, is the favourite to succeed Truss
- BoE's Ben Broadbent says interest rates may not go as high as markets think
2.35pm: Sir Keir Starmer calls for a general election
Sir Keir Starmer, leader of the Labour Party, has called for a general election following the resignation of prime minister, Liz Truss.
“After 12 years of Tory failure, the British people deserve so much better than this revolving door of chaos” he said.
“We need a general election, now” he said.
2.20pm: Sunak, Mourdant and even Johnson in the running to be PM
Speculation has immediately turned as to who will succeed Liz Truss as Prime Minister.
A poll by ITV (LON:ITV) showed that Rishi Sunak is favourite amongst the general public, while former prime minister Boris Johnson remained the top pick amongst Conservative voters.
Both those candidates would face opposition from various factions within the party and another possible candidate is Penny Mourdant.
????LEADERSHIP ELECTION KLAXON????????Rishi Sunak favourite to replace Liz Truss with public
????Boris Johnson most popular with 2019 Conservative voters@OpiniumResearch for @itvpeston
Fieldwork: 18th-19th October, Sample: 1,202 ????
Who do you think is next? Comment ????#Peston https://t.co/Imp1Imze3g
— Peston (@itvpeston) October 20, 2022
2.10pm: Equities and sterling volatile following PM's exit
The initial rally in equities, the pound and gilts following the resignation of Liz Truss has fizzled out with markets heading lower although the mood is volatile.
At 2.10pm the FTSE 100 was down 6 points at 6,920, after pushing higher in the immediate aftermath of the news.
The pound also lost some of its shine, now standing up 0.4%, against the dollar at 1.127, after briefly pushing over $1.13.
Neil Wilson at markets.com said “Sterling, gilts rallied as the sorry reign of Liz Truss came to an end. After a flurry of activity we are seeing retracement of these initial moves as markets realise that there’s still huge uncertainty about whether the Tory party can survive in power.”
Dan Boardman-Weston, CEO and Chief Investment Officer at BRI Wealth Management at BRI Wealth Management, commented: “The resignation of Liz Truss marks the end of a pretty shambolic period of government.”
“The country and markets need certainty, stability and confidence during these highly uncertain times.”
“Hopefully the conservative party can coalesce around a unifying candidate and government can get back to focussing on how to navigate the country through these turbulent times.”
“Sterling, gilts and equity markets have all fallen following the announcement whilst it remains unclear who will be the next Prime Minister. Hopefully once the runners and riders are known, markets will react more favourably and we can move into a period of greater political and economic stability.”
1.56pm: Pound jumps after PM's resignation
The pound has risen following news of the PM's resignation, now standing 0.54% higher at $1.1308, after being down earlier in the day.
The Telegraph reported that an emergency Tory Party board meeting will take place at 4pm today to decide on the rules for picking Liz Truss’s successor. They control the membership part of contest.
Jeremy Hunt, the chancellor, has ruled himself out of running for prime minister..
1.40pm: Leadership election to take place which will be concluded within the next week
Liz Truss has announced her resignation as Prime Minister.
Truss announced her resignation outside 10 Downing Street on Thursday afternoon after succumbing to growing pressure from unhappy Conservative MPs. She said there would be a leadership election, to be concluded "within the next week".
Truss, who has only been in power for 44 days, has been in a highly precarious position since late last month when her uncosted plans for sweeping tax cuts triggered economic turmoil.
Numerous Tory MPs had publicly called for her to quit and the list was set to grow amid rising anger with her leadership.
Total, total chaos now beckons. A one week Tory leadership free-for-all. Will Boris stand? Will Rishi stand? Will deals be done? What on earth are the rules?! Buckle up. https://t.co/RQ5csdSCBd— Ben Riley-Smith (@benrileysmith) October 20, 2022
1.36pm: Liz Truss has resigned
The Prime Minister, Liz Truss, has resigned.
1.24pm: PM to make a statement at 1.30pm
PM statement at 1330 https://t.co/JMcyue2cHK— Nick Eardley (@nickeardleybbc) October 20, 2022
12.50pm: More than 25% of companies report fall in turnover in September - ONS
New data from the Office for National Statistics (ONS) showed that more than a quarter of companies said their turnover decreased in September.
The ONS found 26% of trading businesses reported their turnover was lower compared with August 2022, while just 14% reported their turnover was higher.
The accommodation and food service activities industry saw the biggest drop-off, with 52% of businesses reporting a drop in turnover compared with August.
In early Oct 2022, 41% of trading businesses said they had either:▪️ no cash reserves (13%)
▪️ had three months or less (28%)
This is the highest percentage reported since late June 2021. pic.twitter.com/Sh6JJRTOxw
— Office for National Statistics (ONS) (@ONS) October 20, 2022
In another worrying sign over 40% of UK firms have either no cash reserves left, or have less than three months worth to help them through the downturn.
The situation is particularly tight in the education industry, where 51% of private sector and higher education businesses have less than three months cash left.
The administrative and support service activities industry reported the largest increase in the proportion of businesses reporting having no cash reserves or three months or less, up to 44% from 35% reported in early July.
12.15pm: Bonds gain after comments from BoE's Broadbent
Back in the markets, UK government bond prices have strengthened following Ben Broadbent’s speech.
The yields on two-year, 10-year and 30-year bonds are all now down today, pushing down government borrowing costs, after beinh giher in early trading.
The Bank of England deputy governor said in a speech earlier that interest rates might not need to rise as much as the market expects.
He said: "that while the “justification for tighter policy is clear” in the face of soaring inflation, demand will slow to some extent anyway due to higher prices."
He added: “Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.”
12.00pm: Sir Graham Brady meets PM, Liz Truss
As speculation about the future of the prime minister mounts it has been confirmed that Sir Graham Brady, chairman of the 1922 is at number 10 Downing Street to see Liz Truss.
Earlier, the PM's spokesperson said there were no plans to meet with Brady.
The FTSE 100 pushed higher as news of the meeting broke with the lead index now in positive territory.
Confirmed: the 1922 chairman Sir Graham Brady is currently in No10. https://t.co/RvxklB0k7k— Ben Riley-Smith (@benrileysmith) October 20, 2022
But a number of political correspondents are also reporting that Truss requested the meeting.
NEW: Steady... Told that Truss asked to see Sir Graham Brady rather than the other way round.. might not be THE meeting, but they are meeting currently.Sources say they are taking temperature and have spoken every day this week...
Let's see...
— Harry Cole (@MrHarryCole) October 20, 2022
11.50am: FTSE 100 slightly lower, US markets expected to make a weak start
Heading to midday and the FTSE 100 is trading slightly lower amidst the political chaos with US markets unlikely to lift sentiment when they open today.
At 11.50am the lead index was down 12 points at 6,913 but the broader FTSE 250 moved higher, up 15 points, at 17,262.
A rise in the oil price lifted index heavyweights, BP PLC (LON:BP) and Shell PLC (LON:RDSa), following reports that China may be about the change some of its Covid rules.
US markets are expected to make a weak start to trading later today as US Treasury yields rise amid expectations of further interest rate hikes in the world’s biggest economy.
Futures for the Dow Jones Industrial Average were flat in pre-market trading, while those for the S&P 500 were 0.3% lower, and contracts for the Nasdaq-100 shed 0.6%.
The tone of comments from US rate-setters continues to be hawkish, reflecting concerns over price pressures which in turn weighs on stocks.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted comments from Minneapolis Fed President Neel Kashkari on Thursday that the Federal Reserve could push interest rates beyond 4.75% if inflation doesn’t stop rising.
Against this backdrop, the yield on 10-year US Treasuries rose to 4.127% from just below 4.00%.
11.20am: BoE's Broadbent's comments could prove important - FT
The economics editor of the Financial Times, Chris Giles, said today’s intervention by Bank of England, deputy governor, Ben Broadbent, could be important.
He suggested that if the markets take the deputy governor seriously, we’ll see a fall in expected bank rate.
This is important as it could lead to lower debt interest service costs for the government – in time to shrink the fiscal ‘black hole’ facing Jeremy Hunt, and also lower mortgages rates in a few days time.
Important Speech by @bankofengland Ben BroadbentMore directly saying financial markets are pricing in too many rate rises than I've ever heard before from an MPC member
This is the key chart - how much markets have moved and internal BoE modelling on what it thinks necessary pic.twitter.com/NcuCntAw2k
— Chris Giles (@ChrisGiles_) October 20, 2022
11.05am: Uniper many need additional support - Handelsblatt
The German gas importer Uniper may need up to €40 billion in additional government support, according to a report in the Handelsblatt newspaper said on Thursday, citing financial and government sources.
Germany last month said it will nationalise Uniper after injecting around €8bn into the struggling company in a bid to stave off a collapse of the country's energy sector.
But officials are now drawing up proposals for further emergency funding, according to the report.
The extra funding is needed because the previous rescue package was set to be funded partially by a gas levy that's now been abandoned.
An intervention could happen as early as next week, with the plan to be presented to Uniper shareholders before Christmas, according to the report.
10.35am: Schroders (LON:SDR) take £21bn hit from pensions crisis
Schroders PLC, one of the City’s best know names, saw its assets under management drop by £21bn in the third quarter reflecting the crisis which enveloped the industry during the recent financial turmoil.
Britain's biggest standalone asset manager said assets dropped to £752.4 billion from £773.4 billion in the three months to the end of September.
More than £20bn of the decline came from the firm's Solutions business, which houses its so-called liability-driven investment strategies where assets under management fell to £205.5 billion from £225.7 billion.
Schroders is one of several asset managers to offer LDI investment strategies that typically use derivatives to help pension funds match their assets with their liabilities.
But the results only capture a week of the turmoil that ripped through financial markets following Kwasi Kwarteng’s disastrous min-budget.
Shares in Schroders recovered early losses to trade broadly unchanged by 10.30am.
10.05am: BoE's Broadbent says MPC will respond promptly to UK fiscal policy
Bank of England deputy governor Ben Broadbent has said it ‘remains to be seen’ whether UK interest rates have to rise as much as the markets predict.
Speaking at Imperial College London, Broadbent explained that the economy has been hit by severe real shocks.
“The pandemic raised the global demand for goods and reduced their supply; Russia has cut back severely its supply of gas to Europe. These have had dramatic effects on relative prices.”
“In particular, import prices have risen significantly compared with the price of UK output. This has unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels but its consumption value has not.”
Broadbent said that the Bank’s Monetary Policy Committee will respond promptly to news about fiscal policy adding that the justification for tightening monetary policy is clear.
⚠️ BoE's Broadbent: If Bank Rate were to reach 5.25% [as markets expect]... then the impact on GDP would be -5%... of which only around one quarter has already come through.Buckle up. This isn't going to end well $GBP pic.twitter.com/HJL6KzWxAe
— Viraj Patel (@VPatelFX) October 20, 2022
He also estimated that if the Bank Rate were to reach 5.25% [as markets expect] then the impact on GDP would be -5%, of which only around one quarter has already come through.
9.30am: Yen hits lowest level against US dollar since 1990
The yen tumbled past the key psychological level of 150 to the dollar on Thursday for the first time since 1990, defying Japanese policymakers' repeated threats of intervention to address excessive currency market volatility.
The dollar/yen's break above the key milestone heightens pressure for Tokyo to step into the currency market again to rein in the Japanese unit's relentless decline.
Earlier in the day, Japanese Finance Minister Shunichi Suzuki vowed to take "appropriate steps" against excessive currency market volatility.
BREAKING | Yen falls below 150 per dollar, hitting new 32-year lowhttps://t.co/4grYGSrFJ6#Yen— Nikkei Asia (@NikkeiAsia) October 20, 2022
9.00am: FTSE flat, Deutsche slashes housebuilder price targets
The FTSE 100 remained slightly lower in early trading with political events continuing to grab attention with the uncertainty prompting renewed nervousness on the bond markets.
At 9.00am London’s blue-chip index was down 1 point at 6,924, while the FTSE 250 was 59 points lower at 17,189.
Bond yields rose in reaction to the political chaos with the 2-year gilts yield at 3.56%, up from 3.45% and the 10-year gilt up a similar amount and yielding close to 4%.
Neil Wilson at Markets.com said “Liz Truss’s government is hanging by a thread after the resignation/sacking of Home Secretary Suella Braverman. If it looks like a coup and smells like a coup, then surely it is a coup, right? Chairman Hunt is in charge, if anyone could be said to be in control of this unholy mess.”
Away from politics, housebuilders were once again in focus knocked by a sector review by Deutsche Bank (ETR:DBKGn) which slashed price targets across the sector.
Analysts at investment bank said the housing market is in a state of flux- mortgage rates have tripled; loans are less available and future refinancings will be painful.
As a result, broker said it has had made major cuts to estimates, now predicated on lower house prices, reduced volumes and stubborn build cost inflation.
However, it said falls of c50-60% year to date leaves share prices at steep discounts to NAVs and that after a brutal sell off, Deutsche believes much is now in the price and a relief rally lies ahead.
The rating and price target changes are as follows: Berkeley Group Holdings PLC (LSE:BKG) - Buy to Hold, target 5535p to 3807p; Bellway PLC (LON:BWY) - Hold to Buy, target 3289p to 2167p; Barratt Developments PLC (LON:BDEV) - Buy, target 835p to 462p; Crest Nicholson PLC (LSE:CRST) - Buy, target 416p to 235p; Persimmon PLC (LON:PSN) - Hold, target 2854p to 1207p; Redrow PLC (LON:RDW) - Buy, target 784p to 499p; Taylor Wimpey PLC (LON:TW.) - Buy, target 186p to 115p; Vistry Group (LON:VTYV) PLC (LSE:VTY) - Hold, target 1241p to 710p
On the upside, luxury fashion brand Burberry Group (LON:BRBY) PLC rose 1% following well-received results from French peer Hermes.
8.40am: Gilt yields rise again
The political chaos and economic uncertainty in the UK weighed on the bond market today with the cost of government borrowing rising once again.
Yields on two-year gilts jumped to around 3.6% up from 3.5% last night, while 30-year bond yields have risen to 4.06%, from below 4%. There were similar increases in the 5 and 10-year gilts as well.
Bill Blain, strategist at Shard Capital, said the markets are watching events “in a kind of stunned, open-mouthed horror.”
He told Radio 4’s Today programme that the last couple of weeks have destroyed the image of political competency – which is a key element to make any economy work.
8.15am: FTSE 100 opens lower as political turmoil takes centre stage
FTSE 100 opened slightly lower reflecting falls in the US and Asia and as political turmoil continued in the UK with the position of the prime minister, Liz Truss, seen by many as untenable.
At 8.10am the lead index was down 14 points at 6,911, while the broader FTSE 250 slipped 73 points to 17,175.
More Conservative MPs called on the prime minister to quit with Crispin Blunt telling the BBC “It’s plain what is required. We need to effect a change, frankly, today in order to stop this shambles.”
Of the PM’s position he said it was “Wholly untenable. And if she doesn’t understand then I would be astonished.”
Shares in Bunzl PLC (LON:BNZL) slipped 1.33% despite the group stating that despite "a slowing macroeconomic environment", full-year guidance remained unchanged at constant exchange rates, with the firm expecting to deliver "very good revenue growth in 2022.
The distribution and services group said on Thursday that its "diversified and resilient business model" had delivered "strong growth", with quarter three group revenues up 18.8% at actual exchange rates and 8.7% at constant exchange rates.
Homeware chain Dunelm (LON:DNLM) PLC, which has enjoyed years of strong growth, reported an 8% drop in sales in the last quarter.
The group posted sales of £357mln for the 13 weeks to 1 October, while gross margins fell compared to last year, although it is seeing a “very good response” from customers to its seasonal “winter warm” products including rugs, curtains and blankets.
Nick Wilkinson, Dunelm’s chief executive officer, warned that the landscape is demanding as shoppers face a tough winter: “As we enter what will clearly be a challenging winter for consumers, our absolute focus remains on making every pound count for everyone, through a tight grip on operations.”
Shares fell 1.25% to 795.50p.
7.55am: More MPs call for Truss to go
Tory MPs are in full mutiny mode with more and more openly calling for the prime minister, Liz Truss, to go.
Crispin Blunt said Liz Truss should never have put herself forward for leadership - and should quit today. He told BBC Radio 4 Today’s programme “It’s plain what is required. We need to effect a change, frankly, today in order to stop this shambles.”
Of the PM’s position he said it was “Wholly untenable. And if she doesn’t understand then I would be astonished.”
Tory MP Crispin Blunt says Liz Truss should never have put herself forward for leadership - and should quit today.He tells @BBCr4today: “It’s plain what is required. We need to effect a change, frankly, today in order to stop this shambles.”
— Pippa Crerar (@PippaCrerar) October 20, 2022
Simon Hoare told the same programme that the government is engaged in “hand to hand” combat to survive - and could collapse as early as today.
“Can the ship be turned round? Yes, but there is about 12 hours to do it,” he added.
He said “I think today, tomorrow are crunch days” adding he felt “anger, despair, sadness” as “good work which has been done over recent years appears to be dissolving before our eyes”.
There was a “growing sense of pessimism in all wings of the Tory party,” he cautioned.
7.46: Sterling continues to fall against the US dollar, euro fights back
Cable continues to fall in the latter half of the week despite gilt yields easing off. Currently changing hands at US$1.14, the pair is seeing a modicum of support on the one-hour chart, though the US dollar is unlikely to give in to any significant degree.
Despite incremental support on the one-hour chart, the pound continues to struggle – Source: capital.com
The euro is looking buoyant in the morning’s Asia trading hours, including against the Swiss franc, with the EUR/CHF pair adding another 0.2% to bring the exchange rate up to six-week highs of 0.98 francs.
EUR/USD has added around 30 pips, though at slightly below US$0.98, the pair has a while to go before clawing back all of yesterday’s losses.
The EUR/GBP pair is basically in the same position against the day at 87p, and with nothing of note on today’s economic calendar save inevitable turmoil in the UK parliament, is unlikely to budge much from this price point.
USD/JPY is getting seriously close to the 150 yen threshold, which will undoubtedly trigger a second intervention by the Bank of Japan in order to get the country’s plummeting currency under control.
The Aussie dollar is looking bearish against the rest of the G10 set.
7.43am: Oil prices rise as China debates change to Covid rules
Oil prices pushed higher today as Chinese officials debate easing some Covid rules.
Benchmark Brent crude gained 0.63% to just above $92 a barrel while West Texas Intermediate jumped 1.2pc to trade at around $85.50.
Officials in Beijing are said to be debating whether to reduce the amount of time people coming into the country must spend in isolation.
Any easing of China's zero-Covid strategy would boost expectations of higher demand, though concerns over a global economic slowdown and the prospect of further output cuts by Opec are still weighing.
7.30am: UK hospitality sector slumps in September - Lloyds (LON:LLOY)
Tourism and recreation experienced the fastest fall in output of any UK business sector last month, according to a report out today.
Output in the sector, which includes pubs, hotels and restaurants, declined at the fastest pace since February 2021, when the UK was last in lockdown, with a tracker score of 36.3 in September, according to the Lloyds Bank UK Recovery Tracker. Any reading below 50 indicates contraction.
The drop was caused by demand falling for a fourth consecutive month – to a tracker score of 38.5 last month – as consumers reined in spending amid rising inflation.
However, five of the 14 UK sectors that make up the tracker reported faster growth in output in September, compared with just three the previous month. A tracker reading above 50 indicates expansion.
Output growth was highest among software service providers at 55.8, down from 63.1 in August, followed by healthcare firms, rising to 53.6 from 47.8.
The tracker showed that overall input cost inflation for businesses intensified in September for the first time since May. The increase was driven by rising energy prices for manufacturers, which exceeded a previous peak during the 2008 oil price shock.
Jeavon Lolay, the head of economics and market insight for commercial banking at Lloyds, said: “While we expect UK inflation to remain stubbornly high in the coming months, there are clear signs of an easing in pipeline cost pressures in our latest UK Sector Tracker report.”
7.00am: FTSE 100 seen slightly lower after falls in the US
FTSE 100 is expected to open slightly lower after falls in the US and Asia and as the UK is enveloped in further political chaos with the position of prime minister, Liz Truss, under threat.
Spread betting companies are calling the lead index down by around 6 points.
US markets closed lower on Wednesday, giving back some of the gains of the past two days.
At the close the S&P 500 was down 25 points, or 0.66%, to 3,695, while the Nasdaq Composite fell 92 points, or 0.85%, to 10,861 and the Dow Jones fell 100 points, or 0.33%, to 30,424.
Back in the UK the government appeared to be on the brink of collapse after another chaotic day yesterday which saw the acrimonious resignation of the home secretary, Suella Braverman, mayhem in the Commons over a fracking vote, and confusion over whether the chief and deputy chief whip had quit.
The farcical scenes in the House of Commons, with allegations of manhandling and intimidation by Tory whips, were described as an "absolute disgrace", by Charles Walker, a former vice-chair of the 1922 Committee of backbench MPs.
On the corporate front, trading updates are expected from AJ Bell PLC (LSE:AJB), Bunzl PLC (LSE:BNZL), Dechra Pharmaceuticals PLC (LSE:LON:DPH), Dunelm Group PLC (LSE:DNLM) and Travis Perkins (LSE:LON:TPK) PLC amomgst others.
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