The pound has extended gains after Boris Johnson dropped out of the race to be the next Conservative Party leader.
The pound jumped as much as 1pc against the dollar to $1.1401 in early Asia trading on expectations former Chancellor Rishi Sunak will take the top job.
It eased back to gains of 0.3pc and is still down around 16pc against the greenback this year.
Meanwhile, UK government bonds rallied as investors bet Mr Sunak will bring more stability to financial markets. The yield on the two-year gilt was down as much as 36 basis points to 3.45pc.
Valentin Marinov at Credit Agricole said: “As Prime Minister, Rishi Sunak should help restore fiscal credibility and regain market confidence, but at the cost of more aggressive fiscal austerity and deep UK recession.”
Follow the latest updates below.
FTSE risers and fallers
After inching higher at the open, the FTSE 100 has now slid firmly into the red as a stronger pound and weaker oil prices weighed.
The blue-chip index fell 0.5pc as the pound jumped and bond yields slid as Rishi Sunak looks set to become the next prime minister.
Energy and mining stocks including Shell, Glencore and Rio Tinto lost ground as commodity prices fell back. Financial stocks including Prudential and HSBC also fell sharply as traders scaled back bets on interest rate rises.
The domestically-focused FTSE 250 gained 0.5pc as investors took comfort from the political developments.
Guy Hands: Britain ‘doomed’ unless we renegotiate Brexit
Guy Hands, private equity tycoon and Tory party supporter, has launched a blistering attack on the Government over its handling of the economy.
He told BBC Radio 4’s Today programme that the Government had put the UK on the path of becoming the “sick man of Europe”.
He urged ministers to renegotiate the Brexit deal, warning that failing to do so would mean the economy is “frankly doomed”.
Pushed on what this would mean, he warned of “steadily increasing taxes, steadily reducing benefits and social services, higher interest rates and eventually the need for a bailout from the IMF”.
Bond yields slide as Sunak emerges as frontrunner
UK bonds surged at the open after Boris Johnson pulled out of the race to become prime minister, leaving Rishi Sunak as the clear frontrunner.
Short-dated bonds led the rally, with the yield on the two-year note falling as much as 34 basis points to 3.46pc. The yield on the 10-year gilt fell to 3.81pc.
Traders and also slashing bets on interest rate rises by the Bank of England.
FTSE 100 opens higher
The FTSE 100 has inched higher at the open as traders eye a potential end to political uncertainty with Rishi Sunak closing in on No 10.
The blue-chip index ticked up marginally to 6,973 points.
Gas prices drop as mild weather spreads across Europe
Gas prices have dropped to €100 per megawatt-hour for the first time since June as mild weather and arrivals of liquefied natural gas cargoes eased concerns about winter shortages.
Benchmark European prices slumped as much as 13.6pc, though they’re still trading around three times higher than the normal price for this time of year.
The EU is working on a plan to calm the crisis that includes a cap on gas prices. The bloc also wants to take steps to avoid extreme price spikes and use its joint purchasing power in negotiations with sellers.
The EU’s energy ministers will meet this week to continue to has out the details, with traders keen to see more details about the design of a potential price cap.
Pearson boosted by strong English language demand
Publisher Pearson has reported a 7pc rise in sales in the first nine months of the year as it confirmed it’s on track to hit £100m of cost savings by 2023.
The FTSE 100 education group said sales growth had been driven by a post-pandemic resurgence in English language learning, as well as a return to normal exam timetables.
Pearson said its English language learning sales surged 28pc compared to the same period last year as “global mobility continues to improve with border reopenings”.
Andy Bird, chief executive of Pearson, said:
This has been another good quarter for Pearson and I am pleased with the continuing momentum the business is demonstrating through our sharp focus on delivery.
We are executing well on our plan for accelerated margin improvement.
Liverpool dock workers begin two-week strike
Hundreds of dock workers at one of Britain’s biggest container ports are kicking off a fresh two-week strike, threatening further disruption to supply chains.
Nearly 600 members of the Unite union at the Port of Liverpool will strike again from today after the union said talks to end a long-running dispute over pay ended in “chaos”.
United accused operator Peel Ports of intervening to block a deal, which it said had been agreed in principle.
Sharon Graham, Unite’s general secretary, said: “The talks ended in farce, with the deal agreed between Unite and senior management being pulled by the board. Strike action by our members and with the full support of Unite will go ahead.”
Peel Ports said it was “hugely disappointing” that workers had rejected its improved offer of an 11pc pay rise.
Mike Ashley snaps up stake in struggling Asos
ICYMI – Mike Ashley has seized on Asos’s bombed-out share price to build a stake of more than 5pc in the online fashion retailer, The Telegraph can reveal.
Business editor Christopher Williams has the story:
Market sources said that Frasers Group, the billionaire’s listed holding company, notified Asos late on Friday that it had become a significant shareholder. The move came days after Asos announced an emergency cost-cutting plan alongside a pre-tax loss of £32m.
Frasers has acquired its stake for roughly a tenth of what it would have cost just 18 months ago, when Asos was riding high on the pandemic online shopping boom.
Its valuation has collapsed from more than £5bn in March last year to little over £500m on Friday, making a 5pc stake worth roughly £25m. It makes Frasers the fourth-biggest shareholder in Asos, ahead of Schroders but far behind its top investor, the Danish billionaire Anders Holch Povlsen on 26pc.
Hong Kong stocks plunge as Xi Jinping tightens grip
Hong Kong stocks have plunged to a 13-year low as investors were spooked by Chinese President Xi Jinping’s decision to hand key economic posts to loyalists who back his zero-Covid strategy.
The benchmark Hang Seng Index tumbled 5pc by the break – its weakest level since the height of the global financial crisis in 2009.
The Shanghai Composite Index fell 0.9pc, while the Shenzhen Composite Index on China’s second exchange lost 0.4pc.
Xi’s decision to pack his leadership with supporters as he tightens his grip on power suggests Beijing is unlikely to shift from its strategy of fighting Covid outbreaks with lockdowns and other strict measures.
The fears offset better-than-expected GDP figures for the third quarter, as traders remained on edge about the outlook for the world’s second-largest economy.
Shell invests $1.5bn in Qatari LNG project
Shell is pumping about $1.5bn into Qatar’s latest gas project, just months are investing into another of the Gulf nation’s developments.
The energy giant will take a 9.4pc stake in North Field South, which will expand Qatar’s liquefied natural gas output capacity by 16m tonnes a year.
French firm TotalEnergies joined the project in September with a holding the same size as Shell’s. Qatar is selling 25pc of the project, leaving at least one more partner to be announced.
The country is ramping up its production and liquefaction capacity amid a global surge in demand for gas.
Ben van Beurden, Shell chief executive, said the EU’s plan to cap gas prices would be complicated, adding that the bloc will have to reduce industrial demand for gas.
He said: “I’m sure this will settle in an appropriate and responsible way that will really benefit both markets and consumers in Europe.”
Surging inflation triggers wave of profit warnings
The cost-of-living surge is inflicting the greatest pain on businesses since the financial crisis after the number of companies warning about their profits jumped to a 14-year high.
New figures from EY-Parthenon show there were 86 profit warnings at UK-listed companies in the three months to the end of September, up more than two thirds from last summer and the highest level for the period since 2008.
The data suggests that 28 listed companies are in the “danger zone”, having warned over profits three times in the past year.
Typically, a fifth of businesses which issue three profit warnings either collapse into administration or are snapped up within a year of the third warning.
Read more: Surging inflation triggers biggest wave of profit warnings since financial crisis
Avon shocked by pound’s plunge
The boss of global beauty giant Avon has said the pound’s plunge in the wake of the mini-budget market turmoil was the group’s biggest shock of the past year as she likened the sterling sell-off to the Turkish lira crisis.
Angela Cretu, global chief executive of Avon International, told the PA news agency that sterling’s dramatic fall had caused challenges for the group, which reports in US dollars.
She said the volatility of the pound would likely be reflected in its figures, although she stressed the group was well hedged against currency fluctuations.
“The pound going down – that was the biggest surprise. I thought the UK was the least of our worries,” said Ms Cretu, having previously faced currency issues in a raft of its other global markets, including Turkey, which suffered a meltdown of the Turkish lira in 2021.
“I never would’ve thought that… I’d be talking about the pound as I would the Turkish lira.”
The group – which is owned by Brazilian beauty group Natura – reports its third quarter figures on November 11 as it gears up for the crucial Christmas season.
Ms Cretu said the group had responded to rampant cost rises by making savings across the group, cutting US$100 million (£90.2 million) in costs by stripping out layers of management and overhauling its systems in a bid to protect prices.
The US dollar weathered another suspected blast of Japanese intervention to push higher on the yen on Monday, while most share markets rallied on just the hint of an eventual slowdown in US rate hikes.
The dollar started in a bullish mood with an early rush to 149.70 yen, before taking a sudden spill as far as 145.28 in a matter of minutes. Yet speculators seemed undaunted and took the dollar back up to 148.90 in choppy trading.
5 things to start your day
1) Post-Brexit overhaul of red tape will allow London tech to thrive, says IBM chief – Britain will remain a leading player in the industry despite mini-Budget chaos, according to head of company’s UK arm
2) Anger in Germany’s industrial heartlands as Putin cuts off the gas – Pressure is piling on Olaf Scholz as manufacturing industry pays the price for energy shortages
3) Britain locked in two-horse race to crack nuclear fusion, says Japanese start-up – UK or US will be first to develop reactors capable of generating vast amounts of clean power, says executive at Kyoto Fusioneering
4) Activists seek to block Christmas displays of alcohol in the supermarket – Campaigners fighting to prevent prominent wine and beer promotions after advent calendars and biscuits relegated in anti-obesity drive
5) Liam Halligan: The new PM must break Britain out of its low-growth doom loop – Yes, our budgetary position is precarious, but we still need to go for growth
What happened overnight
A slump in Chinese stocks took the shine off a rally in equities in other major Asian markets on Monday while Treasury yields slipped from multi-year highs.
Hong Kong’s benchmark share index opened about 2pc lower as investors contended with the delayed release of China’s economic growth data and the conclusion of the party congress in Beijing.
Equities were higher in Japan, South Korea and Australia while US futures advanced after stocks on Wall Street had their best week since June.
Trading in major currencies was choppy, with the yen swinging between gains and losses amid signs of a second intervention from Japanese authorities in two sessions. Volatility is set to continue, with the Government’s efforts to curb rapid depreciation running counter to the Bank of Japan’s ultra-loose monetary policy.
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