After suffering its largest single-day decline in three weeks, the British stock market recovered today, despite the fact that investors were preparing for months of political turbulence and doubts over Boris Johnson’s future.
The benchmark FTSE 100 index increased by 1.44 percent or 101 points to open at 7,127 points in early trade in London this morning.
The recovery came after yesterday’s 2.9% decline, which saw the blue-chip index close at its lowest point in a fortnight since June 24 after some of its largest corporations were severely impacted by a sharp decline in commodities prices.
The resignations of Sajid Javid as health secretary and Rishi Sunak as chancellor come as the prime minister seeks to hold onto his position as leader of the country.
Some investors seemed to be encouraged by expectations that the government’s strict position on fiscal spending will relax in response to the growing political turmoil.
‘The next leader will seek to win over voters and the Tory party, so possibly down the road we see fiscal subsidies for energy and tax cuts to win over the Tory faithful,’ said Jordan Rochester, a currency strategist at Nomura Securities in London.
But first, a leadership contest winner must be determined, which may take anywhere between six and eight weeks. Then, we must wait for the incoming chancellor’s judgments.
Sterling, which is at a two-year low versus the dollar, is expected to get no relief in the near future, according to investors.
The head of research at the Melbourne-based brokerage Pepperstone, Chris Weston, stated today: “I don’t think this news will come as a huge shock to many people. Everyone is sort of doing the rounds and watching to see who might possibly enter.
“The price action we’re seeing in the pound is extremely symbolic of a market that feels policies will be continued,”
Investors must take into account price increases, the record current account deficit, and the possibility of a recession in addition to any change in leadership.
Since December, the Bank of England has increased interest rates five times; however, traders have reduced their forecasts for additional tightening this year due to concerns that an increase in borrowing costs might further harm the economy.
Sterling has been weakened by Brexit-related issues, particularly the growing dispute over Northern Ireland’s status that threatens to disrupt British trade relations with the EU.
After reaching $1.1899 over night, the exchange rate remained steady in Asia at $1.1964. It has decreased by almost 12% so far this year.
The pound’s value against a basket of currencies is represented by the BoE’s trade-weighted sterling index, which dropped on Monday to its lowest level since January of the previous year.
And yesterday, following its worst one-day decline since mid-June, the FTSE 100 index closed at its lowest point since June 24.
However, the index, which is heavily weighted toward healthcare, mining, and banking firms, is only down 4.8% this year, compared to the nearly 20% decline in the US S&P 500.
Are things going to change if there is a change in government? asked Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
Will the issues be resolved if the prime minister is removed? A lot of local drama is going on.
Yesterday, a number of government resignations and resignations from the Cabinet nearly forced Mr. Johnson out of Number 10.
The resignations of Mr. Sunak and Mr. Javid occurred as the Prime Minister was being pressured to issue a humiliating apology on the controversy surrounding scandal-plagued former deputy chief whip Chris Pincher.
The two were immediately changed last night, with Steve Barclay taking over as Health Secretary and Mr. Zahawi being elevated to become the next Chancellor.
When asked today about his tax strategies, Mr. Zahawi responded that he would “look at everything.” When questioned about his plans for corporation tax, the incoming Chancellor responded, “Nothing’s off the table.”
When asked about the Prime Minister’s urgent plans for tax reduction and inflation control, he responded to Sky News as follows: “On my first day at work, we had a chat about how my responsibility is to revive and expand the economy.
I’ll take a close look at everything to ensure that we stay on the side of the people.
When questioned explicitly about his plans for corporation tax, he responded, “I will look at everything. Nothing is off the table. One of the nations with the best investment climates is what I want to.
“I am aware that boards from all over the world consider the long term when making investment decisions, and corporation tax is the one tax they can compare globally. While upholding fiscal restraint, I want to make sure that we are as competitive as we can be.
Additionally, Mr. Zahawi stated that he accepted the position because he has confidence in the government’s ability to “deliver,” adding that there are “no simple solutions.”
You don’t enter this profession expecting to lead an easy life, he told Sky News. You face some difficult choices every day. Although it’s sometimes simple to walk away, doing the right thing for the country is much harder.
After Mr. Sunak’s resignation, Mr. Zahawi was promoted from his position as education secretary. He responded: “You’re asking me a question about why I’m doing this job.
“I’m doing it because I believe the government team in place today is the team that will deliver, that will deliver today a tax cut for 30 million people, that will deliver £330 today, as we’ve moved the threshold of national insurance,” the speaker said.
There are significant hurdles ahead of us, he continued. I want to see that those issues are resolved.
Potential rivals for the leadership position Mr. Sunak and Mr. Javid sharply criticized Mr. Johnson in their resignation letters.
In his resignation letter, Mr. Sunak stated that “the public correctly expects government to be done professionally, competently, and seriously.” He continued, “I believe these principles are worth fighting for.”
Voters now believe Mr. Johnson’s administration is neither competent nor “operating in the national interest,” despite Mr. Javid’s assertion that the British people “demand integrity from their government.”
Lord David Frost, a former Brexit minister for the Tories, endorsed their resignations and pointed out that they did so after he did the same in December.
According to Lord Frost in the Telegraph, other Cabinet members must now decide whether they are actually satisfied with the current course of action or risk “bringing the party and the Government down with him.” Mr. Johnson should resign from his position.
Downing Street had been engulfed in the scandal surrounding Mr. Pincher’s resignation in recent days as the Prime Minister was questioned about his knowledge of the charges and rumors surrounding the Tory MP prior to his appointment as deputy chief whip.
After being accused of groping two men at the upscale Carlton Club, Mr. Pincher resigned as deputy chief whip last week.
However, Mr. Johnson was aware of the accusations against him as early as 2019.
When Mr. Pincher was discovered to have acted inappropriately while serving as a Foreign Office minister in 2019, the Prime Minister acknowledged he should have fired him; yet, Mr. Johnson went on to nominate him to further government positions.
Mr. Johnson responded, “I think it was a mistake and I’m sorry for it,” when asked if that was a mistake. In retrospect, it was the incorrect action to do.
I sincerely apologize to everyone who was negatively impacted by it. I want to be very clear that anyone who is predatory or who abuses their position of power has no place in this government.
The previous 2019 complaints had not been brought up to Mr. Johnson, according to information provided to MPs.
Then-foreign secretary and deputy prime minister Dominic Raab reprimanded Mr. Pincher for his “inappropriate” behavior in “no uncertain terms,” and the Cabinet Office’s propriety and ethics team was also involved.
After Mr. Pincher’s abrupt retirement, No. 10 had initially asserted that Mr. Johnson had not been made aware of any “particular charges.”
That statement had changed by Monday to indicate that the Prime Minister was aware of “allegations that were either settled or did not escalate to a formal complaint.”
The Prime Minister experienced a number of previous setbacks before this most recent argument.
His reputation had already been tarnished by a confidence vote in which 41% of his own MPs had deserted him.
Oliver Dowden, the party’s chairman, resigned as a result of the party losing crucial by-elections in Tiverton, Honiton, and Wakefield in June, and there is still unresolved resentment over the parties in Downing Street that broke the coronavirus lockdown.
Despite Michelle Donelan, the minister for universities, taking over the education portfolio, Mr. Johnson continues to enjoy the support of a number of Cabinet members, including Dominic Raab, Liz Truss, Michael Gove, Therese Coffey, and Ben Wallace.
However, other government resignations occurred in the hours following Mr. Sunak and Mr. Javid’s departure.
Theo Clarke and Andrew Murrison resigned as trade envoys, Bim Afolami resigned from his position as Tory vice-chair live on television, and ministerial aides Jonathan Gullis, Saqib Bhatti, Nicola Richards, and Virginia Crosbie also left their positions.
Alex Chalk, the solicitor general, also resigned last night.
If the rules of the Tory 1922 Committee are altered to permit another confidence vote within a year, the decision about the Prime Minister’s future may ultimately rest with backbench MPs.
That, according to Mr. Johnson’s allies, is improbable since it would put “a gun to the head” of any future leader.
More immediately, during today’s Prime Minister’s Questions, Mr. Johnson will be grilled by lawmakers from all sides of the House. Later, the Commons Liaison Committee will question him.
Given that the committee, chaired by Sir Bernard Jenkin, is made up of a number of Tory MPs who are not like of his leadership, that interrogation is likely to be very harsh.
Following the resignations yesterday night, Mr. Johnson’s allies in the Cabinet rallied around him as he prepared to reorganize various Government positions as a result of the resignations.
He “consistently gets all the important decisions right,” according to Culture Secretary Nadine Dorries, while Brexit Opportunities Minister Jacob Rees-Mogg stated the mandate from the general election of 2019 “should not be taken away from him because a number of individuals resign.”
Mr. Rees-Mogg described Mr. Johnson as still being “unflappable” after speaking with him last night.
It is unclear whether Mr. Johnson, who has a history of avoiding controversy, will make it through the upcoming weeks.
According to a quick YouGov poll of more than 3,000 individuals, seven out of ten Britons believe Boris Johnson should step down. The Times newspaper also called for Mr. Johnson’s resignation in an editorial.
“Every day he stays only makes the sense of anarchy worse.” It stated that he should leave for the benefit of the nation.