Within minutes of Andrea Leadsom announcing that she was leaving the field clear for May to become leader, the index of Britain’s biggest listed companies rose to the point where it had gained more than 20% since February’s low – the technical definition of a bull market.
The FTSE100 has now risen by 1,145 points since it hit a 2016 nadir of 5537 on 11 February, when investors were anxious about the low oil price and threat of global recession.
Share prices had already been supported by growing speculation that the Bank of England is ready to cut interest rates from 0.5% to 0.25% on Thursday as a confidence-building measure at the first meeting of its nine-strong monetary policy committee since the Brexit result.
London’s rise was part of a worldwide uplift in share prices that saw Wall Street’s S&P500 hit a new record and the technology-heavy Nasdaq index break through the 5000-mark for the first time in 2016 as US investors digested Friday’s strong jobs data.
Analysts said Leadsom’s withdrawal from a contest that was set to last for almost two months had helped remove some of the uncertainty that has been worrying investors since the UK decided to sever its 43-year membership of the EU, and before it the EEC.
Connor Campbell of Spreadex, a spread betting firm, said: “Theresa May is clearly the market’s preferred choice for Britain’s top job, as evidenced by the reaction that greeted Leadsom’s stand-down statement. May’s lack of interest in rushing to activate article 50 and her relatively less contentious relationship with the EU when compared with her (now long gone) rivals, as well as the general cheer at the mere fact of the UK once again having a PM, is arguably responsible for the rise from the FTSE and pound, both of which improved on their morning performances.”
The FTSE 100 is now higher than it was before the Brexit vote, although that in part reflects the fact that the index contains a large number of companies with high US dollar earnings, which will now be worth more in sterling terms due to the fall in the value of the pound.
The FTSE 100 ended the day 92 points higher at 6682, with only seven firms seeing their share prices fall. Mining firm Anglo American was the biggest gainer, closing 8.5% higher, followed by building supply firm Travis Perkins, which rose 7.8%.
But the FTSE 250 – which is viewed as more representative of UK business – is still below where it was before the close of trading on 23 June, when the City expected the remain side to win. The FTSE 250 was up 2% and is showing a gain of 11% since February’s low point.
On the currency markets, the pound briefly rose above $1.30 on the news that May now had no leadership challenger, but later fell back in anticipation of action from the Bank of England on interest rates.
Laith Khalaf, senior analyst at investment advisor Hargreaves Lansdown, said: “The Footsie has been tipped into a bull market by the emergence of Theresa May as prime minister, though the whiff of some loose monetary policy coming from the Bank of England this Thursday probably helped the index over the line, too. The role played by the commodity behemoths should not be underestimated either, these stocks are now trading at much higher prices than in the depths of the market in February.
“Overall, the Footsie has proved resilient in the face of all the uncertainty created by the Brexit vote, though that really is testament to the international makeup of the index, and the long-standing faith in central bankers to come to the rescue by turning on the printing presses. If Mark Carney fails to act on Thursday, the market will be disappointed.”
Chris Beauchamp of IG, a spread betting firm, said events in Westminster had boosted confidence in the City.
“UK politics continues to provide the most compelling TV viewing of the year so far, as Theresa May’s last opponent abandons the field.
“The bounce in UK mid-caps is more than partly due to hopes that, with remainer May as PM, talks with Europe may be smoother, while the disappearance of a summer leadership contest has helped clear the road ahead for UK equities.”
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