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Truss resigns - market reaction

Liz Truss resigns after 44 days as Prime Minister
October 20, 2022
  • Prime minister resigns
  • Who's next
  • Markets rally, briefly

Sterling, gilts rallied as the sorry reign of Liz Truss came to an end. After a flurry of activity we are seeing retracement of these initial moves as markets realise that there’s still huge uncertainty about whether the Tory party can survive in power. The economic policies were already dead in the water so the market doesn’t have a huge amount of genuine new information to move on despite the seismic events of the last 24 hours.

Standing down maybe allows for new leader to see out term – likely Sunak/Hunt ticket - meaning fiscal restraint. Longer she clung on the bigger risk of Lab election victory – Labour hardly paragons of fiscal credibility so the market probably likes orthodox one-nation Tory economics than anything else. Underlying problems facing the economy remain acute. Two years to fix the economy and Tory popularity – can it be done? Does ousting Truss open up fresh divisions and does BoJo make a return?!

Leadership election in the coming week – she is caretaker until then. Looks like the membership will be cut out. What does this mean for the market?

Kneejerk verdict was damning but it’s all over the place so it’s important not to derive hard conclusions from these moves. But the initial reaction seemed very appropriate as the market has acted as judge, jury and executioner for the Truss regime.

GBUSD rallied to 1.1310 from an earlier low of 1.1170 before trimming gains at 1.1260, a favourite haunt. Note moves in USD crosses across the board with the US 10yr moving up.

Gilts rallied with the 30yr yield dropping under 3.8% from a high of 4.156% earlier before easing back up above 3.94%.

The FTSE 100 initially popped to a high of the day at 6,955 before dropping back sharply to trade a bit lower at 6,900.

The FTSE 250 jumped from being in the red to trade up 100pts or so, a gain of 0.6% on the day as of send time.

 

See also: 

New prime minister facing multiple crises from day one

 

Neil Wilson is chief markets analyst at Markets.com