London open: Mini-budget U-turn hopes lift stocks

London stocks rallied in early trade amid growing hopes the government will backtrack on its controversial mini-budget.

At 0820 BST, the FTSE 100 was up 1.2% at 6,934.11, while sterling was trading at $1.1303, close to its highest level against the dollar in a week, and gilt yields fell.

The mood was lifted by speculation that the government could be set to scrap all or parts of the mini-budget, which included £45bn of unfunded tax cuts but no spending review or economic forecasts.

It was reported on Friday that chancellor Kwasi Kwarteng has cut short his visit to the International Monetary Fund in Washington. It was understood that Kwarteng is travelling home ahead of schedule for emergency talks with prime minister Liz Truss and other Conservative MPs.

Kwasi’s early return coincides with the end of Bank of England’s £65bn bond-buying programme, which was implemented as a result of the chaos brought about by the mini-budget.

There has been no official comment from the Treasury about Kwarteng’s return, although according to the BBC, a source close to the chancellor said: "He was very, very keen to be in London talking to colleagues." According to the Financial Times, a source said the chancellor’s departure was not based on "panic" but a need to sell his medium-term fiscal plan to both MPs and the public.

Mel Stride, chair of the Treasury Select Committee, told Radio 4's Today on Friday: "It could well be that a U-turn is about to happen and of course [Kwarteng] will want to be in the room if that is about to happen. My personal view is that it should happen."

There was also speculation on Thursday that the government is considering putting up corporation tax, although Treasury sources continued to insist there would be no changes.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "The FTSE100 reacted positively yesterday, and is expected to do the same again today, on news that the government may finally be heeding warnings and is considering a reversal on more of its planned tax cuts.

"Anxiety around the enormous funding gap needed to pay for the cuts has triggered sharp market turmoil the UK had hoped not to see for a long while following the pandemic. Chancellor Kwasi Kwarteng won’t be blind to the effect flying home from his Washington DC trip early will have - there is allegedly no precedent for a chancellor returning early from the IMF event for personal reasons.

"There is a sense of urgency in this move and it would seem the market is optimistic that Kwarteng’s romcom-worthy dash through the airport suggests a dramatic reconciliation between stubborn existing policy and the U-turn investors have been waiting for. It’s worth keeping in mind that the FTSE will remain over-sensitive to any changes from here, if U-turns fail to materialise, or are deemed too small, we’re likely to see an adverse reaction."

Investors were also eyeing bank earnings in the US, with JPMorgan, Citigroup, Morgan Stanley and Wells Fargo all slated to report later in the day.

In equity markets, banks and housebuilders were among the top performers following recent heavy losses, with Barclays, Lloyds, Taylor Wimpey, Barratt and Berkeley all up.

Packaging and paper group Mondi gained as it reported a 55% jump in third-quarter underlying core earnings amid higher selling prices and volume growth.

On the downside, International Distribution Services slumped after it said Royal Mail was looking to cut 10,000 jobs by the end of August 2023 and warned of financial losses due to industrial action and lower parcel volumes.

The newly-renamed Royal Mail parent company said the job loss figure could include up to 6,000 redundancies. For the current fiscal year, Royal Mail forecast an adjusted operating loss of around £350m, including the direct, immediate impact of eight days of industrial action which have taken place or been notified to Royal Mail, but excluding any charges for voluntary redundancy costs.

"This may increase to around a £450m loss if customers move volume away for longer periods following the initial disruption," it added.

Market Movers

FTSE 100 (UKX) 6,934.11 1.22%
FTSE 250 (MCX) 17,205.08 1.63%
techMARK (TASX) 4,121.88 1.24%

FTSE 100 - Risers

Barclays (BARC) 147.76p 3.66%
SEGRO (SGRO) 735.20p 3.29%
St James's Place (STJ) 982.00p 3.22%
Taylor Wimpey (TW.) 89.36p 3.19%
Barratt Developments (BDEV) 352.60p 3.16%
Berkeley Group Holdings (The) (BKG) 3,409.00p 3.15%
Lloyds Banking Group (LLOY) 43.06p 3.10%
International Consolidated Airlines Group SA (CDI) (IAG) 112.16p 3.09%
JD Sports Fashion (JD.) 96.88p 3.06%
Legal & General Group (LGEN) 223.80p 2.99%

FTSE 100 - Fallers

Shell (SHEL) 2,302.00p -0.02%
Aveva Group (AVV) 3,176.00p 0.09%
Imperial Brands (IMB) 2,016.00p 0.25%
HSBC Holdings (HSBA) 461.30p 0.45%
BP (BP.) 460.30p 0.45%
Haleon (HLN) 271.90p 0.52%
London Stock Exchange Group (LSEG) 7,340.00p 0.55%
GSK (GSK) 1,339.20p 0.62%
British American Tobacco (BATS) 3,294.50p 0.66%
AstraZeneca (AZN) 9,847.00p 0.69%

FTSE 250 - Risers

Virgin Money UK (VMUK) 134.55p 4.95%
Petrofac Ltd. (PFC) 99.90p 4.83%
Mitie Group (MTO) 67.30p 4.67%
Darktrace (DARK) 310.20p 4.44%
Genus (GNS) 2,472.00p 4.22%
Future (FUTR) 1,234.00p 3.87%
CMC Markets (CMCX) 229.50p 3.61%
easyJet (EZJ) 303.10p 3.55%
Balanced Commercial Property Trust Limited (BCPT) 76.50p 3.52%
Tritax Big Box Reit (BBOX) 132.40p 3.44%

FTSE 250 - Fallers

Polymetal International (POLY) 205.00p -0.97%
Network International Holdings (NETW) 299.80p -0.27%
NextEnergy Solar Fund Limited Red (NESF) 103.10p -0.10%
Foresight Solar Fund Limited (FSFL) 107.00p 0.00%
Renishaw (RSW) 3,372.00p 0.00%
Fidelity European Trust (FEV) 267.00p 0.00%
Coats Group (COA) 55.00p 0.00%
IP Group (IPO) 56.65p 0.00%
Morgan Sindall Group (MGNS) 1,434.00p 0.00%
CLS Holdings (CLI) 131.40p 0.00%