Oct 20 (Reuters) – Britain’s major stock indexes closed higher on Thursday after Liz Truss announced she would step down as British Prime Minister, bringing relief to investors after her ill-fated tax plans sparked turmoil in the financial markets.
The blue chip FTSE 100 (.FTSE) rose 0.3% but gains were capped as a jump in the pound hurt dollar holders such as AstraZeneca (AZN.L) and Diageo (DGE. L).
The battered FTSE 250 index (.FTMC), which is more exposed to the domestic economy (.FTMC), climbed 0.8%.
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Homebuilders (.FTNMX402020), Retailers (.FTNMX404010), REITs (.FTNMX351020) and Real Estate (.FTNMX3510), which recently bore the brunt of the sell-off due to macro concerns over the redesign UK budget, gained between 0.9% and 2.3%.
Truss was forced to scrap almost all of its fiscal policy agenda earlier this week after it sparked a bond market rout that forced the Bank of England to intervene, shattered investor confidence and enraged much of it. of his conservative party.
The pressure on Truss had been mounting in recent days and a leadership election will end next week.
“Overall, Truss’s resignation is a step that needed to be taken for the UK government to make progress on restoring its credibility in the eyes of financial markets,” said Paul Dales, chief UK economist at Capital. Economics in London.
“But there is still much to do and the new Prime Minister and his Chancellor have the daunting task of navigating the economy through the cost of living crisis, the cost of borrowing crisis and the cost of credibility crisis. The situation is clearly going to evolve very quickly.”
A semblance of calm in the markets surfaced with UK five-year credit default swaps (CDS) – instruments used to hedge against default – easing to 37 basis points (bps) after closing at 40 bps Wednesday.
According to media reports, former finance minister Rishi Sunak, Penny Mordaunt and former prime minister Boris Johnson were due to stand to replace Truss.
Investors have put the brakes on bets on a full one percentage point interest rate hike by the Bank of England next month, after a senior official said it remained to be seen whether rates would rise too stronger than the market had expected. Read more
Traders are now pricing in an 84% chance of a 75 basis point rate hike. 0#BOWATCH
Jupiter (JUP.L) jumped 10.1% after the fund manager reported lower net outflows for the three months to September.
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Reporting by Sruthi Shankar, Bansari Mayur Kamdar, Amruta Khandekar, Johann M Cherian and Devik Jain in Bengaluru; additional reporting by Samuel Indyk in London; Editing by Arun Koyyur and Bernadette Baum
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