London midday: Stocks, sterling little changed as Sunak set to become PM

London stocks were little changed by midday on Monday, while sterling had pared gains, as former chancellor Rishi Sunak looked set to be crowned prime minister after Boris Johnson pulled out of the race.

The FTSE 100 was 0.1% firmer at 6,976.30, while the pound was off earlier highs, up just 0.1% against the dollar at 1.1311.

In a statement on Sunday, the former PM 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 Commons leader Penny Mordaunt in the leadership contest, with the former the clear font-runner and expected to be announced as PM as early as Monday.

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.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The cult of Boris which was hanging over the Conservatives like a charm of enchantment has for now been broken, sending the pound higher, after the former Prime Minister said he would not stand again. Westminster is rife with speculation that he had not garnered enough support from MPs, despite his protestation of the contrary.

"He had threatened to cause fresh political instability, given that it’s less than two months since he left the job, so his retreat from the race brought a sigh of relief for sterling and an even bigger sigh of relief on the bond markets.

"10-year gilt yields have fallen back sharply from above 4% on Friday to 3.8% in early trading. It’s an indication that bond vigilantes have been pacified by the expectations of a calmer political horizon ahead with fiscal responsibility forecast to be the new mantra of the incoming Prime Minister."

On the macroeconomic front, a survey out earlier showed that the UK economic downturn deepened in October, with business activity down to its lowest level since January 2021.

The flash S&P Global/CIPS composite purchasing managers’ index - which measures activity in the services and manufacturing sectors - fell to 47.2 from 49.1 in September. This was below consensus expectations for a reading of 48.0 and the 50.0 mark that separates contraction from expansion.

The manufacturing PMI declined to 45.8 in October from 48.4 in September, hitting a 29-month low and coming in below consensus expectations of 48.0. Meanwhile, the PMI for the services sector fell to a 21-month low of 47.5 from 50.0. This was also below expectations of 48.0.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "October's flash PMI data showed the pace of economic decline gathering momentum after the recent political and financial market upheavals. The heightened political and economic uncertainty has caused business activity to fall at a rate not seen since the global financial crisis in 2009 if pandemic lockdown months are excluded. GDP therefore looks certain to fall in the fourth quarter after a likely third quarter contraction, meaning the UK is in recession.

"While the economic downturn has led to reduced upward pressure on prices, the weak pound and high energy costs meant that input cost inflation remains higher than at any time in the survey’s history prior to the pandemic.

"The resulting elevated, albeit easing, price pressures look set to drive the Bank of England into further aggressive interest rate hikes. On top of the collapse in political stability, financial market stress and slump in confidence, these higher borrowing costs will add to speculation of a worryingly deep UK recession."

In equity markets, educational publisher Pearson surged after reaffirming its expectations for full-year sales and adjusted operating profit as it posted a 7% jump in third-quarter underlying sales.

Auto Trader rallied after saying it had sold its Webzone subsidiary sold to Mediahuis Ireland for €30m.

Banks were also on the rise ahead of third-quarter results this week, with Barclays and LLoyds both higher.

Asos shot up after Frasers Group confirmed it has built a 5% stake in the online fashion retailer and become its fourth-largest shareholder.

On the downside, Asia-focused Prudential was the worst performer on the FTSE 100 following heavy losses in Asian markets.

Heavily-weighted miners were among the worst performers, with Antofagasta, Rio Tinto, Anglo American and Glencore all weaker.

Market Movers

FTSE 100 (UKX) 6,976.30 0.09%
FTSE 250 (MCX) 17,313.74 0.62%
techMARK (TASX) 4,136.12 0.31%

FTSE 100 - Risers

Pearson (PSON) 955.60p 7.69%
Auto Trader Group (AUTO) 506.80p 4.24%
Rightmove (RMV) 474.00p 3.25%
Lloyds Banking Group (LLOY) 42.65p 3.06%
Next (NXT) 4,872.00p 2.83%
SSE (SSE) 1,491.00p 2.83%
Spirax-Sarco Engineering (SPX) 10,590.00p 2.82%
Whitbread (WTB) 2,641.00p 2.80%
Persimmon (PSN) 1,252.50p 2.79%
Flutter Entertainment (CDI) (FLTR) 10,840.00p 2.41%

FTSE 100 - Fallers

Prudential (PRU) 827.00p -6.70%
Antofagasta (ANTO) 1,108.00p -3.48%
Anglo American (AAL) 2,660.50p -2.69%
Fresnillo (FRES) 700.40p -2.45%
Shell (SHEL) 2,297.50p -1.98%
Rio Tinto (RIO) 4,719.50p -1.78%
Glencore (GLEN) 493.60p -1.69%
Standard Chartered (STAN) 557.80p -1.62%
HSBC Holdings (HSBA) 470.60p -1.52%
GSK (GSK) 1,379.20p -0.95%

FTSE 250 - Risers

CMC Markets (CMCX) 235.50p 6.08%
Indivior (INDV) 1,539.00p 5.77%
HGCapital Trust (HGT) 362.00p 5.69%
Bridgepoint Group (Reg S) (BPT) 201.80p 4.72%
Trainline (TRN) 312.80p 4.72%
Kainos Group (KNOS) 1,264.00p 3.61%
Bank of Georgia Group (BGEO) 2,095.00p 3.46%
Softcat (SCT) 1,133.00p 3.09%
Baltic Classifieds Group (BCG) 136.40p 2.87%
Rotork (ROR) 254.20p 2.83%

FTSE 250 - Fallers

Fidelity China Special Situations (FCSS) 191.60p -7.22%
Ferrexpo (FXPO) 109.90p -7.02%
Jupiter Fund Management (JUP) 93.70p -6.21%
Vietnam Enterprise Investments (DI) (VEIL) 514.00p -6.03%
Templeton Emerging Markets Inv Trust (TEM) 134.20p -3.45%
Dr. Martens (DOCS) 216.40p -3.13%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 419.50p -3.01%
Schroder Oriental Income Fund Ltd. (SOI) 234.00p -2.90%
Fidelity Emerging Markets Limited Ptg NPV (FEML) 558.00p -2.79%
JPMorgan Emerging Markets Inv Trust (JMG) 94.50p -2.68%