Pound perks up as markets digest Liz Truss as new PM

After yesterday sinking to a 37-year low against the dollar, the pound perked up on Tuesday, rising 0.2% to $1.1586 as the UK prepared for the changing of the guard at number 10.

Reports so far suggest energy providers will be able to use government-backed loans to subsidise bills, meaning there could be some near-term relief on energy costs for consumers and businesses. While not expected to be confirmed until Thursday, the messages clearly being fed in from Liz Truss’ team do help to remove some uncertainty and that has translated into a stronger day for UK stocks.

“The FTSE 100 nudged ahead 0.2% to 7,299, led by consumer cyclicals and financials. Investors appear to be betting that the potential relief on energy bills might help avoid the disastrous scenario previously feared whereby consumers would drastically cut back on spending,” ,” says Russ Mould, investment director at AJ Bell.

“Some of the top risers on the blue-chip stock index included retailers Next and JD Sports, kitchens seller Howden Joinery and DIY store chain owner Kingfisher. A similar trend was seen on the FTSE 250 with Dunelm, Marks & Spencer, ASOS and Greggs all surging.

“These stocks have all suffered this year as earnings expectations were cut and investors priced in the likelihood of a recession. Now we might be at the stage where investors take the view that shares in retailers have been oversold, hence the big recovery rally today. How long it will last is another matter, as the general cost of living crisis is still punishing for households, whether energy bills go up further or not.

“Power producers including SSE and Drax enjoyed a small bounce. The market is likely to be taking the view that rumoured government-backed loans to help subsidise customer bills mean energy suppliers won’t be hit by a windfall tax on their profits.

“Very strong levels of growth in sales and profits weren’t enough to drive Ashtead’s shares forward. The construction equipment rental group hit a sour note with the market by saying that better than expected performance is being offset by higher interest costs, which means there isn’t an upgrade to earnings forecasts today.”