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FTSE 100 closes in the green after Liz Truss resigns as UK prime minister

The FTSE 100 jumped after Liz Truss resigns as prime minister. Photo: Leon Neal/Getty
The FTSE 100 jumped after Liz Truss resigns as prime minister. Photo: Leon Neal/Getty (Leon Neal via Getty Images)

European stocks closed in green on Thursday after Liz Truss gave up the keys to No10, resigning as prime minister after weeks of market and political turmoil.

Truss confirmed she'll be stepping down from the top job after just 44 days, announcing that she will stay on as PM and that there will be a leadership election to replace her, which will "be delivered within the next week".

Speaking from a lectern in Downing Street, Truss said she told the King she was quitting as the leader of the Conservatives as she can no longer deliver the mandate which Tory members gave her just over six weeks ago.

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Read more: Pound up after Liz Truss quits and Keir Starmer calls for general election

Earlier this week, chancellor Jeremy Hunt reversed almost all of the tax cuts announced in the mini-budget, in a bid to calm the meltdown in bond markets that forced an intervention from the Bank of England.

In London, the FTSE 100 (^FTSE) closed up 0.3%. The domestically-focused FTSE 250 (^FTMC) rallied 0.8% as markets took some comfort from the PM's departure.

The CAC 40 (^FCHI) rose 0.8% on the day, while the DAX (^GDAXI) gained 0.3% in Frankfurt.

The pound rose 0.7% to $1.13 against the dollar after Truss's resignation as traders' sentiment was buoyed by her departure after she oversaw chaos in financial markets.

Chris Beauchamp, chief market analyst at online trading platform IG, said: "The pound has risen following Liz Truss’ decision to resign, while stocks have taken heart from better earnings and moved higher.

"Liz Truss’ now becomes Britain’s shortest serving PM, but sterling seems content as, ironically, it likely cements Jeremy Hunt’s position as chancellor.

Even the apparent resurrection of Boris as a political figure hasn’t unnerved markets particularly, since the fiscal plan is likely to remain in place as the government (whoever leads it) looks determined to repair Britain’s shaky position in the eyes of financial markets."

It comes as the Bank of England tempered its interest rate hiking rhetoric.

Ben Broadbent, the BoE's deputy governor, said it’s not clear that UK rates need to rise as much as markets expect and warned about a hit to the economy if investors' bets come to pass. If interest rates follow the current path, it could cause a 5% hit to gross domestic product, he said.

He said that while the "justification for tighter policy is clear" in the face of soaring inflation, demand will slow to some extent anyway due to higher prices in a speech at the Imperial College London on Thursday.

"Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen," Broadbent added.

Analyst and traders had priced in a full percentage point of rate increase at the next BoE meeting in November, but started to back away from those bets by around 15 basis points after the speech.

Markets are now betting that interest rates will peak at 5.2% by June, down from 5.3% before Broadbent’s speech, and up from the current 2.25% Bank Rate. His comments come as UK inflation returned to double-digits in September.

Read more: Bank of England wasn't fully briefed before Liz Truss's disastrous mini-budget, Cunliffe reveals

Across the pond, US indices trader higher as traders weighed a batch of company earnings against the latest unravellings in politics in Britain, but fears over a recession still linger.

On Wall Street the tech-heavy Nasdaq (^IXIC) led the way, advancing 1.2%, the S&P 500 (^GSPC) increased 24.92 points, or 0.7%, to 3720.08. The Dow Jones (^DJI) added 0.7% at Europe's close.

"Worries are still lingering that a strong-arm Fed could push the US economy into a sharp downturn which will have repercussions around the world," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said. "That sentiment appears to be weighing on markets."

Stock markets in Asia tracked the downturn, finishing in the red overnight as the yen (JPY=X) slumped to its lowest level against the dollar since 1990.

The falling Japanese currency has tumbled to 150 per dollar for the first time since 1990, driven down by the contrast between Japanese monetary easing and aggressive US interest rate hikes.

The currency has plunged from February levels of around 149.80 to the dollar as the Bank of Japan stuck to its long-standing ultra-loose policies, which are designed to encourage sustainable growth.

The central bank of the world's third-largest economy intervened in the market back in September to support the declining yen.

In Hong Kong, the Hang Seng (^HSI) was down 1.3%, the Nikkei (^N225) closed 0.9% lower in Tokyo and the Shanghai Composite (000001.SS) slid 0.3% in Mainland China.

"After another weak session on Wall Street last night, the negative tone spread to Asia on Thursday with Hong Kong’s Hang Seng index down 1.3% amid concerns about a sharp slowdown in China’s economic growth," Russ Mould, investment director at AJ Bell said.

Watch: How does inflation affect interest rates?