London close: Stocks up, pound down on start of Sunak premiership

The FTSE 100 ended the session up 0.64% at 7,013.99, and the FTSE 250 was ahead 0.76% at 17,337.55.

Sterling was weaker against its major trading pairs, last falling 0.12% on the dollar to $1.1290, while it slipped 0.2% against the euro to €1.1435.

“News that Rishi Sunak will become the next UK prime minister has spared markets any additional uncertainty today, with the UK essentially set to be steered through this crisis by two chancellors,” said IG senior market analyst Joshua Mahony.

“Gilt markets have certainly responded positively, with falling yields bringing hope that we will see borrowing costs continue to ease after a turbulent Truss tenure.

“Nonetheless, with the pro-growth policies a thing of the past, it was unlikely that the course of UK finances would change much irrespective of whether Penny or Rishi had been successful.”

Mahony said that while Sunak had the benefits of being an “experienced operator” from a financial perspective, there would be concerns over whether he was best equipped to steer the UK into “highly choppy” international waters.

“Russia and China have shown a willingness to challenge the Western-focused status quo of late, and thus it will be left in Sunak’s hands to operate on both a domestic and international level.”

Indeed, former UK finance minister Rishi Sunak became Britain's third prime minister in seven weeks earlier in the afternoon, after winning the Conservative Party's leadership contest in the first round.

Multi-millionaire Sunak easily passed the threshold of 100 backers from party lawmakers.

His only challenger, Penny Mordaunt, withdrew from the race after failing to garner the requisite support ahead of a 1400 BST deadline.

Sunak came second in the leadership contest against Truss in the summer in a poll of Tory members.

He would now lead a febrile, fractious and divided party, many of whom despise him for sparking the defections that led to the downfall of the disgraced Boris Johnson in the summer after two years of scandal and perceived mismanagement.

On top of that was an economy in freefall with mortgages, energy bills and inflation soaring, exacerbated by Truss' disastrous mini-budget that caused massive turmoil in bond markets, forcing the Bank of England to spend billions buying up government debt.

Sunak was expected to formally take over as prime minister from Truss on Tuesday, after meeting King Charles at Buckingham Palace.

The weekend was dominated by a theatrical campaign by Johnson to make a comeback.

His backers claimed he had 102 MP votes, but only 60 ever showed their hand and by Sunday his bid evaporated, even though he never publicly declared his candidacy.

By Monday, many of those who supported Johnson, including foreign minister James Cleverly and fellow cabinet member Nadhim Zahawi were quickly backpedalling and throwing their support behind the new leader ahead of the announcement of yet another new government.

The opposition Labour Party called for a general election, claiming that Sunak had no mandate.

“The Tories have crowned Rishi Sunak as prime minister without him saying a single word about how he would run the country and without anyone having the chance to vote,” said deputy party leader Angela Rayner.

“Rishi Sunak has no mandate and no idea what working people need.

“We need a general election so the public get a say on the future of Britain - and the chance for a fresh start with Labour.”

On the data front, Britain’s economic downturn deepened in October according to a new survey, 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.

That was below consensus expectations for a reading of 48.0, and the 50-point level 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 - also below expectations of 48.0.

“October's flash PMI data showed the pace of economic decline gathering momentum after the recent political and financial market upheavals,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“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.”

Williamson said that while the economic downturn had led to reduced upward pressure on prices, the weak pound and high energy costs meant that input cost inflation remained higher than at any time in the survey’s history before 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.”

Elsewhere, retail footfall dropped 2.3% in the week ended 23 October due to "consumer nervousness", as the ongoing cost of living crisis squeezes household incomes amid recent political turbulence at home.

According to Springboard, footfall dropped in all key destination types - down 3.3% in high streets, 1.5% in retail parks, and 0.7% in shopping centres - and declined across all UK geographies - apart from Scotland where it rose by 1.1%

In six areas of the UK, the drop in footfall from the week before exceeded the average of 2.3%, dropping 3.7% in the West Midlands and 3.2% in the East Midlands.

High streets in the Midlands saw a more severe decline in footfall - down 5.9% in the West Midlands and 5.2% in the East.

The uplift from 2021 across all UK retail destinations contracted to 5.9% from 6.7% in the previous week, but the gap from 2019 widened to 11.1% from 9.2% in the week before last.

“There are several factors at play in terms of what is driving consumer activity; however, the most evident is the squeeze on household incomes as a consequence of inflation and increased mortgage rates,” said Diane Wehrle, Springboard's insights director.

“This, mixed in with the current political uncertainty, inevitably makes consumers cautious and then rail back on shopping trips.

“This is likely to have been compounded by the prospect of school half term this week, which may well have meant that shoppers deferred trips last week.”

Finally, profit warnings by UK companies hit their highest level in the third quarter of the year since 2008 amid surging inflation, according to EY-Parthenon’s latest report.

The research showed that 86 profit warnings were issued between July and September, up from 51 in the same period in 2021, which is an increase of 69%.

Compared to the second quarter of this year, profit warnings were up 34%.

Consumer-facing companies were among the worst hit, with profits warnings in that segment up nearly three-fold year-on-year.

Within that, retailers saw the most warnings in the quarter, followed by travel and leisure, and food producers.

The report showed that 57% of profit warnings in the third quarter were put down to rising costs, while 23% were prompted by labour market issues.

On the continent, eurozone business activity contracted again in October - at the fastest pace in two years.

The S&P Global flash composite output index, which covers both the services and manufacturing sectors, fell to 47.1 from 48.1 in September, denoting contraction for the fourth month in a row.

Economists had been expecting a reading of 47.5.

Across the pond, business activity in the US shrank again in October as demand weakened amid high inflation.

The S&P Global flash composite output index fell to 47.3 from 49.5 in September, hitting a two-month low, and also marking the fourth month in a row the reading came in below 50.

S&P’s flash manufacturing purchasing managers’ index printed at 49.9 in October, down from 52.0 a month earlier and reaching a 28-month low, while the PMI for the services sector declined to 46.6 from 49.3 - a two-month low.

Finally on data, better-than-expected economic growth was the headline of a large data dump out of China, after a series of economic releases were delayed until after Beijing’s National Congress.

According to the data, gross domestic product (GDP) in the People’s Republic expanded 3.9% year-on-year in the third quarter.

That was better than the 3.3% rise pencilled in by economists, and was well ahead of the 0.4% print in the second quarter.

On the industrial front, production expanded by 6.4% in September - well ahead of the 4.8% anticipated by markets, and hastening from August’s 4.2%.

Fixed asset investment, meanwhile, was up 5.9% in September, up from 5.8% in August by less than the 6% that had been expected.

Elsewhere, retail sales growth slowed to 2.5% for September, from August’s 5.4%, and failed to reach the 3% figure that had been widely expected.

New home prices fell, however, by 0.28% month-on-month, having slipped 0.29% in August.

Looking at trade, the country’s trade balance increased to $84.7bn for September, from $79.4bn in August and ahead of consensus expectations for $80.3bn.

Exports rose 5.7%, slowing from 7.1% in August but ahead of the 4% expected, while imports rose an unchanged 0.3%, above expectations for a flat reading.

On London’s equity markets, educational publisher Pearson jumped 8.74% 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 Group rallied 3.25% after saying it had sold its Webzone subsidiary to Mediahuis Ireland for €30m.

Banks were also on the rise ahead of third-quarter results this week, with Barclays up 2.69% and Lloyds Banking Group 2.79% higher.

Asos advanced 1.47% after Frasers Group confirmed it had built a 5% stake in the online fashion retailer and become its fourth-largest shareholder.

Shares in Frasers itself managed gains of 1.21%.

On the downside, Asia-focused Prudential tumbled 9.27% following heavy losses in Asian markets.

Heavily-weighted miners were also below the waterline, with Antofagasta down 2.22%, Rio Tinto Group off 1.14%, Anglo American losing 1.74%, and Glencore 0.04% weaker.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Iain Gilbert.

Market Movers

FTSE 100 (UKX) 7,013.99 0.64%
FTSE 250 (MCX) 17,337.55 0.76%
techMARK (TASX) 4,149.61 0.64%

FTSE 100 - Risers

Pearson (PSON) 965.00p 8.74%
Persimmon (PSN) 1,264.50p 4.47%
SSE (SSE) 1,506.00p 4.00%
Barratt Developments (BDEV) 359.50p 3.73%
Berkeley Group Holdings (The) (BKG) 3,429.00p 3.72%
Auto Trader Group (AUTO) 502.00p 3.25%
Next (NXT) 4,889.00p 3.04%
Taylor Wimpey (TW.) 91.08p 2.93%
United Utilities Group (UU.) 912.20p 2.89%
Spirax-Sarco Engineering (SPX) 10,595.00p 2.86%

FTSE 100 - Fallers

Prudential (PRU) 804.20p -9.27%
Fresnillo (FRES) 698.40p -2.73%
Antofagasta (ANTO) 1,120.00p -2.22%
Scottish Mortgage Inv Trust (SMT) 734.40p -1.84%
Anglo American (AAL) 2,686.50p -1.74%
Rio Tinto (RIO) 4,750.00p -1.14%
Ocado Group (OCDO) 479.00p -1.07%
Standard Chartered (STAN) 561.40p -0.95%
International Consolidated Airlines Group SA (CDI) (IAG) 112.96p -0.91%
Pershing Square Holdings Ltd NPV (PSH) 2,770.00p -0.72%

FTSE 250 - Risers

Indivior (INDV) 1,547.00p 6.32%
Morgan Sindall Group (MGNS) 1,450.00p 4.31%
CMC Markets (CMCX) 231.50p 4.28%
HGCapital Trust (HGT) 357.00p 4.23%
Baltic Classifieds Group (BCG) 138.20p 4.22%
Bridgepoint Group (Reg S) (BPT) 200.60p 4.10%
Pennon Group (PNN) 819.00p 4.07%
Drax Group (DRX) 492.60p 4.06%
Bank of Georgia Group (BGEO) 2,105.00p 3.95%
Supermarket Income Reit (SUPR) 101.00p 3.70%

FTSE 250 - Fallers

Fidelity China Special Situations (FCSS) 186.20p -9.83%
Ferrexpo (FXPO) 109.40p -7.45%
Vietnam Enterprise Investments (DI) (VEIL) 512.00p -6.40%
Jupiter Fund Management (JUP) 94.10p -5.81%
Aston Martin Lagonda Global Holdings (AML) 95.76p -5.66%
Moonpig Group (MOON) 121.60p -4.97%
Home Reit (HOME) 81.80p -4.22%
Templeton Emerging Markets Inv Trust (TEM) 133.20p -4.17%
Dr. Martens (DOCS) 215.20p -3.67%
Schroder Oriental Income Fund Ltd. (SOI) 232.50p -3.53%