FTSE 100 closes up
Boris Johnson becomes UK Prime Minister
US stocks mixed; sterling weaker
FTSE 100 closed in positive territory on Tuesday as there were seemingly no major shockwaves put through the market as Boris Johnson got his hands on the keys to Number 10.
Britain's blue-chip index closed up nearly 42 points at 7,556 as it also received a boost from weaker sterling, falling around 0.23% against the US dollar.
Mid-cap cousin FTSE 250 added over 104 points at 19,752.
"The FTSE powered higher as Boris Johnson was declared the new Conservative Party leader and Britain’s next Prime Minister, with investors mostly relieved that at least that the wait for the Tory vote was finally over," summed up Fiona Cincotta, senior market analyst at spreadbetter City Index.
"In his acceptance speech Johnson mostly repeated the messages he had given before, that he plans to deliver Brexit on time but also adding that he plans to keep Jeremy Corbyn out of power."
In a perhaps surprise twist, the EU chief negotiator Michel Barnier said the bloc was ready to rework the agreed declaration on a new partnership in line with European Council guidelines and were keen to achieve an orderly Brexit.
In Europe, stocks were higher with the German DAX up over 201 points; on Wall Street, the Dow Jones Industrial Average is up around 35 points at the time of writing.
4pm: Footsie comes off the top
Share prices of London’s leading shares have come off the top, although risers still outnumber fallers by 2-to-1 among the Footsie constituents.
The FTSE 100 was up 50 points (0.7%) at 7,565.
After a dismal day yesterday in which the shares tumbled from Friday’s close of 4,902p to 4,685p on completion of its tender off, Premier Inns owner Whitbread plc (LON:WTB) fell further to 4,516p today.
Supermarket stocks were also out of favour after the latest survey by market research group Kantar revealed the listed players in the sector continue to lose share to the German hard discounters, Aldi and Lidl.
3.00pm: US stocks on the front foot
US stocks opened higher, with the Dow notching up a triple-digit rise.
The Dow Jones was up 100 points (0.4%) at 27,272 while the broader-based S&P 500 was up 9 points (00.3%) at 2,994.
Back in London, the FTSE 100 was up 65 points (0.9%) at 7,580. The mid-cap FTSE 250 was up 105 points (0.5%) at 19,753, with insurance broker Beazley PLC (LON:BEZ) to the fore after a solid set of interims.
Beazley shares rose 4.6% to 561p as the company saw its half-year profits soar to US$166.4mln.
Going the other way was FDM Group Holdings PLC (LON:FDM), down 4.1% at 859p, after the information technology consultancy service’s half-year report failed to come up to snuff.
Adjusted profit before tax improved by 7% to £27.0mln from £25.2mln the year before.
1.30pm: Stock market continues to rise; Boris Johnson yet to claim credit
Well, the honeymoon period of new Conservative Party leader has lasted at least an hour, with the Footsie adding to the morning's gains.
London's index of leading shares was up 64 points (0.9%) at 7,579 – its highest level of the day in the wake of the announcement that Boris Johnson had outscored Jeremy Hunt by 92,153 votes to 46,656.
According to the spread betting firm Sporting Index, the market for how long Johnson will remain in office is around 210 days. Should that prediction prove bang on the money, Johnson's premiership would be the third shortest in British parliamentary history.
“Boris Johnson’s coronation as new Prime Minister will be divisive for the Conservatives and he could have one of the shortest reigns in history if he is unable to unite the Party sooner rather than later,” declared Sporting's trading spokesman, Phil Fairclough.
“There’s likely to be as many as seven resignation letters handed in following his appointment, given the ongoing mess surrounding Brexit,” he added.
Another betting firm, Betway reckons a General Election will take place before Brexit occurs; it is offering odds of 8/13 on an election occurring before Brexit, and 6/5 on Britain leaving the European Union before the next General Election.
The market’s bounce may have more to do with sterling falling to US$1.2446 from around US$1.2468 on the announcement of Johnson’s victory than it does with any long-term confidence in Johnson’s abilities as prime minister.
A weak sterling is generally regarded as being good for the multi-nationals that comprise the majority of the Footsie’s constituent list.
Meanwhile, the CBI industrial trends survey for July suggests the prime minister in waiting has a big task on his hands if he wants to rejuvenate the UK manufacturing sector.
The CBI’s orders balance plunged to -34 in July from -15 in June; the balance is arrived at by proportionally reducing the number of survey respondents to 100 and then subtracting the number of those reporting a decline in orders from those reporting an increase.
“The July CBI industrial trends survey points to the manufacturing sector struggling hugely early in the third quarter. This follows a torrid second quarter for the sector when activity was hit by an unwinding of the stockpiling that had occurred in the first quarter amid Brexit concerns as well as weak domestic and foreign demand. Car plant shutdowns in April also held back the manufacturing sector in the second quarter,” reported Howard Archer, the chief economic advisor to the EY ITEM Club.
“July’s reading was below the long-term average of -13%. Overall order books were considered to be below normal levels to the largest extent since 2010,” Archer observed.
12.15pm: Johnson trounces Hunt
Confirmation that Boris Johnson has been elected as the new leader of the Conservative Party had little impact on stock market sentiment in London.
Such was the City's certainty that BoJo/Bozo (delete according to your opinion of Johnson) would get the gig, the FTSE 100 continued to hover around the 7,560 mark – up 47 points (0.6%) at 7,562.
The pound perked up a bit, however, more or less halving its losses today against the US dollar, rising to US$1.2460; the pound is now down about one-sixth of a cent against the US currency.
Philip Smeaton, the chief investment officer at Sanlam UK, said that despite Johnson's convincing victory, Britain's new prime minister “now has to put his punchy rhetoric into action and deliver Brexit by 31 October, 'do or die'. The next couple of months will be highly charged and divisive, but for the markets, it’s very much business as usual.
“Johnson’s views on Brexit and other policy areas have been well publicised over many years and markets have had time to consider and price in his policy proposals,” Smeaton added.
Smeaton said Johnson's victory means the chances of the UK leaving the European Union without a deal have significantly increased.
“We still question whether this is a viable route considering the parliamentary arithmetic. Equally, we don’t believe the EU will cave to the UK’s demands around the Irish backstop and hand a victory to Johnson and the hard-core European Research Group. Despite having a new prime minister, it’s still a case of catch-22 for the UK,” he added.
11.30am: No-deal Brexit fears hit sterling
Forex traders continue to sell sterling on the prospect of Boris “no-deal” Johnson becoming prime minister, providing a boost to the Footsie.
Against the greenback, sterling is down one-third of a cent at US$1.2443. The FTSE 100, meanwhile, is up 44 points (0.6%) at 7,560.
“Sterling declines are helping to drive the FTSE 100 higher in early trade today, with markets gearing up for a likely Boris Johnson leadership. Declines for sterling come as no surprise, with traders reflecting their expectations of a government led by a Prime Minister who has laid out a clear pathway for leaving without a deal in October,” said Joshua Mahony at IG Group.
“For all the talk of wanting a deal, Johnson’s disregard of both the withdrawal agreement and the prospect of another extension points towards an almost impossible task ahead of the current frontrunner. Throughout much of this process we have seen the greater good cast aside in the name of party politics, and victory for Johnson today would once again be driven primarily by the Conservatives desire to remain in power; however, for markets the value of the pound will be dictated by who has the least chance of a no-deal Brexit, and thus an unlikely win from Hunt would be expected to bring a sharp rise in the pound,” Mahony opined.
The results of the leadership contest are expected to be announced at about 11.45am today.
Supermarket stocks are not going with the firmer trend, with sentiment dented by the latest grocery market share figures from Kantar for the 12 weeks ending 14 July.
The figures show that supermarket sales fell by 0.5% year-on-year, representing the first overall decline in the sector since June 2016.
Market research group Kantar was quick to note that in the same period of last year, the country was enjoying a hot summer and an implausibly successful World Cup run by the England team.
“It was a challenging 12 weeks for all the major grocers, with growth slowing at every supermarket except Ocado. The main factor behind the sales drop-off is shoppers heading out to stores less often. Last year people shopped more frequently and closer to home as they topped up the cupboards while enjoying the sunshine and the men’s football World Cup,” said Fraser McKevitt, the head of retail and consumer insight at Kantar.
Despite Ocado being cited as one of the better performers in the period, the groceries delivery specialist was one of the harder hit stocks, falling 1.4% to 1,202.5p.
Sector leader Tesco PLC (LON:TSCO) was the worst performer, sliding 2.1% to 230.2p while J Sainsbury PLC (LON:SBRY) tumbled 1% to 204.9p and Wm Morrison Supermarkets PLC (LON:MRW) eased 0.8% to 516.3p.
Hard discounter Lidl was the fastest-growing bricks and mortar retailer this period, with sales up 7.0%. In a period in which sales of beer were down 11% year-on-year and cider sales were off 13%, Lidl bucked the trend by increasing sales of booze by 19%.
10.30am: Move over darling - it's Boris Day
Ahead of the announcement of the results of the Tory Party leadership contest, sterling was down by just over a third of cent against the US dollar, giving a boost to London's blue-chip equities.
“The company has not been immune to issues affecting many other companies including the wetter start to the current summer season. It is also finding it increasingly difficult to find new customers in bars, pubs and supermarkets as the UK market appears to be quite saturated," said Helal Miah, an investment research analyst at The Share Centre.
8.45am: Unexepectedly optimistic vibe ahead of the results of the Conservative Party leadership contest
There was an unexpectedly optimistic vibe in the Square Mile as Boris ‘phaw, phaw’ Johnson prepared to bumble over the threshold of 10 Downing Street later with the FTSE 100 rising 38 points to 7,552.57.
Experts pointed out the pound rather than the stock market was a better indicator of the massed psyche of the City as it edged below US$1.25, reflecting the threat of a No Deal Brexit following Johnson’s elevation to Prime Minister.
“Boris to become PM – what does it mean for sterling and UK assets? Not a lot for the now as so much is priced in,” said Neil Wilson of Markets.com.
“However, we are yet to find out what all shakes out in terms of the regime shift.
“Remember this is not just a new leader, but an entire new regime. The content, tone and emphasis from Number 10 will be very different to what we had under May.
“We would reiterate that there is a heightened prospect of No Deal under BoJo, yet when faced with the realpolitik of it all, a compromise may well be found.”
Mondi (LON:MNDI) led the blue-chips with a 2.4% rise after the paper and packaging group’s trading update. On the flipside, budget hotelier Whitbread (LON:WTB) – off 2.6% - continued to feel the pressure from the short sellers.
There wasn’t much respite for Sirius Minerals (LON:SXX), which was little moved by a broker circular that suggested its share are currently worth 40p currently and closer to 68p once a US$500mln bond issue is concluded. The stock nudged down marginally in early trade to 15.83p.
6.30am: FTSE 100 called higher
The FTSE 100 is expected to start higher on Tuesday as the pound heads lower amid the uncertainty surrounding Prime Minister-elect Boris Johnson’s true Brexit position.
London’s blue chip index will climb around 28 points to around 7541, according to the IG spread-betting platform.
Overnight, Wall Street’s main stock indices all finished in the green, but with fairly modest gains, while Asian equities are marching higher.
The Dow Jones Industrial Average inched up 18 points or 0.1% to close at 27,171.9, with the S&P 500 adding 0.3% and the Nasdaq Composite the strongest with a 0.7% gain.
In Asia, the Nikkei is leading the way, up 1.2%, with the Hang Seng adding 0.2% and Shanghai Composite up 0.1%.
Back to the UK, the month-long contest to chose the next Tory leader, and therefore the country’s new PM, will be revealed around 11am this morning.
With ‘Bojo’ being the overwhelming favourite being, markets were given a little taste of what to expect in coming days by the resignation of Alan Duncan as a foreign office minister yesterday, with further resignations expected.
Markets showed their opinion with a further dip in the pound to US$1.2452.
Johnson has stated his intention to take the UK out of Europe with or without a deal at the end of the 31 October deadline, "do or die, come what may", but he faces major objections to no-deal in his party and will barely command a parliamentary majority.
As the new PM he will still face the same "intractable parliamentary arithmetic" that scuppered Theresa May’s attempts to push the Brexit deal through the House of Commons, said market analyst Michael Hewson at CMC Markets, with the only difference being that Johnson, if he wins, will have to marshal his defences against MPs in his party who want to prevent no deal at any cost.
“If anything, the new Prime Ministers task will be even more difficult given recent defections and recent by election losses, that has seen the Conservative majority slip to two, which means the DUP votes will be more important than ever in the context of getting modifications to the contentious Irish backstop.
“What this means for sterling is anyone’s guess, but away from the political noise the prospect of a no deal Brexit is no higher or lower than it was a week ago, or a month ago. The only thing that has changed is that in terms of time it’s closer. “
Smattering of results due at 7am
With the bulk of this week’s scheduled corporate news due to come out on Wednesday and Thursday, Tuesday is left looking like a fairly quiet affair in terms of corporate results.
FTSE 100 industrial property investor Segro PLC (LON:SGRO) and student accommodation owner Unite PLC (LON:UTG) are both set to push out half-year numbers, while full-year results are expected from soap maker PZ Cussons PLC (LON:PZC).
The company expects annual turnover to fall to £475mln from £569mln last year and operating profit to drop to £190mln from £281mln.
The group has said it will maintain the 43.2p per share annual dividend until its earnings allow it to resume progressive dividends.
In a strategy review in May, the IG said it expects to see growth resume after this year and will up spending by £30mln a year to take advantage of opportunities in new products and territories.
These new opportunities are forecast to generate an additional £100mln of revenue by 2022, with the core business to grow by 3-5% a year.
Around the markets:
- GBPUSD $1.2452, down 0.2%;
- Bitcoin US$10,140.00, down 4.39%;
- Gold US$1,416.30 an ounce, down 0.7%;
- Brent crude US$63.38, up 0.2%
Tuesday July 23:
Trading updates: Paragon Group PLC (LON:PAG)
AGMs: Stobart Group PLC (LON:STOB)
Economic data: CBI distributive trades survey; US existing home sales