FTSE 100 rises as Boris Johnson steps down

Published On: July 8, 2022Categories: Stocks & Shares2.5 min read

London’s benchmark index was 1.1% up by the end of the session, extending its run of gains after a sell-off earlier in the week

The FTSE 100 was trading higher on Thursday as prime minister Boris Johnson stepped down following a flurry of resignations from UK government officials.

London’s benchmark index was 1.1% up by the end of the session, extending its run of gains after a sell-off earlier in the week, while the CAC advanced 1.6% in Paris, and the DAX advanced 2% in Frankfurt.

The British PM resigned as Conservative leader, and is now looking at continuing in the role until the autumn. If all goes according to Johnson’s wishes, a Conservative leadership race will take place this summer and a new leader will be in place in time for the Tory party conference in October.

However, he has already faced mounting calls to resign sooner, with a campaign to replace him already underway.

Gabriele Foà, co-portfolio manager at Algebris Investments said: The initial reaction in the pound sterling and UK gilts confirm markets are broadly taking the change well.

Near term, however, volatility is likely to persist, as it is likely we will have no clarity on the new prime minister until October, and inflation and the cost-of-living crisis are set to continue to increase until then, Foà said.

It comes as 50 MPs resigned their posts within his government, including the chancellor and the health secretary, with Hexham MP Guy Opperman being the latest to leave his post as pensions minister.

Newly-appointed chancellor Nadhim Zahawi also told Johnson earlier in the day that he must resign. In a letter posted on Twitter, he said things would ‘only get worse’. He added: You must do the right thing and go now.

Education secretary Michelle Donelan resigned after just two days in the job.

After hitting its lowest level since the start of the pandemic, the pound climbed again after the prime minister’s announcement.

Sterling climbed to $1.1980, up 0.5%, or half a cent, off its recent two-year lows as traders hoped the PMs departure would bring more political stability.

Markets have not been massively perturbed by the political machinations – there is not a deep political risk here to UK assets, Neil Wilson of Markets.com said.

But I would stress that the outcome from the moves to oust Johnson mean tax cuts are more likely, whoever is in Number 10 at the end of the month, he said.

Looser fiscal policy are the likely result of political pressures – the ‘cost of living crisis’ looms large – which would only makes it harder to tame inflation; all of which is likely weighing on the pound. Options markets indicated traders are increasingly positioned for further losses, he said.

Ben Laidler, global markets strategist at social investment network eToro added: Markets may welcome the step towards lesser political uncertainty, with no general election due until January 2025, and potential tax cuts in the meantime to support the weakening economy.

It is another reminder that markets are not economies. Despite the UK’s soaring inflation, slumping economic growth, and political uncertainty, the FTSE100 is the least worst performing major global stock market this year, he said.

He said: It is down only 4% versus the 20% falls of the US S&P 500 and Germany’s DAX, benefiting from its mix of cheap commodity and defensive high dividend stocks.

About the Author: Jonathan Adams

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