UK government bond yields narrowed and share prices rose, though the pound continued to lag, amid increasing market expectations that Westminster will reverse course on fiscal policy, and even change chancellor.
Prime Minister Liz Truss is to hold a press conference later on Friday amid speculation of a major U-turn on Chancellor Kwasi Kwarteng's mini-budget.
Kwarteng flew back to London on Friday for crisis talks after cutting short a visit to the International Monetary Fund's annual meeting in Washington. His flight touched down at Heathrow Airport amid reports he will be sacked as Truss seeks to shore up her battered authority among Tory MPs.
The 'mini-budget' unnerved investors last month, battering the pound and sending bond markets into turmoil. The Bank of England was forced to step in, though its emergency gilt-buying programme ends on Friday.
The FTSE 100 index rose 84.11 points, or 1.2%, to 6,934.38 midday Friday. The blue-chip benchmark opened about 1% higher, but that gain was trimmed to 0.6% in mid-morning trade. It rallied again just before midday on the press conference news, however.
The FTSE 250 was up 210.53 points, or 1.2%, to 17,139.79. The AIM All-Share added 4.27 points, 0.6%, at 780.04.
The Cboe UK 100 surged 1.1% to 692.23, the Cboe UK 250 also rose 1.1% to sit at 14,649.42 points at midday. The Cboe Small Companies traded 0.9% higher at 12,249.92.
In European equities on Friday afternoon, the DAX 40 in Frankfurt was up 1.3%, while the CAC 40 in Paris was up 1.4%.
‘It's been a wild ride on the markets this year and there are still plenty of opposing forces which could push and pull equities, bonds and currencies in one direction or the other,’ AJ Bell analyst Russ Mould commented.
‘After yesterday's yo-yo session on Wall Street, where higher-than-expected inflation figures initially caused a slump and then a sudden reversal, European and Asian markets have chosen to take an optimistic view and moved higher. How long that will last is another matter.’
The analyst drew attention to the UK bond market, where gilt yields have narrowed. The yield on the 30-year gilt slimmed to around 4.27% shortly before midday from 4.55% at 1700 BST on Thursday.
Mould added: ‘Always look at the bond market if you want to know what the smart investors are thinking, and a drop in gilt yields on Friday tells you one of two things. Either the Bank of England is hoovering up gilts sold by pension funds (pushing up the price and pulling down the yield) before the end of its support measures today, or markets believe the chancellor is going to rip up his mini-budget and start again. The smart money is probably on the latter.’
Sterling climbed as high as $1.1377 on Thursday, but faced selling pressure on Friday. The pound fell to $1.1271 around midday, down from $1.1340 late Thursday.
The euro fetched $0.9739 midday Friday, down from $0.9772 at the European equities close on Thursday. Against the yen, the dollar was trading at JP¥147.67, a more than two-decade high and up from JP¥147.19 at the London equities close on Thursday.
Still to come on Friday's economic calendar is a US retail sales reading at 1330 BST. Sales growth is expected to slow month-on-month to 0.2% in September, following a 0.3% rise in August, according to consensus cited by FXStreet.
‘Despite the wild and ultimately positive gyrations in asset markets yesterday, the core narrative will remain one of the Fed continuing to push real rates and the dollar higher,’ analysts at ING commented.
In shares in International Distributions Services tumbled 12%.
The recently renamed FTSE 250 company warned of an interim loss at its Royal Mail arm in the UK, as well as more job cuts as it counts the cost of strike action.
For the six months to September, Royal Mail suffered a £219 million adjusted operating loss, swinging from £235 million profit a year earlier. Revenue fell 11% to £3.65 billion from £4.07 billion. IDS reported a £70 million profit hit from industrial action.
There could be more strikes to come to, as it has been threatened, but not yet ‘formally notified’ of a further 16 days of industrial action in November and December, around the key Christmas period.
Based on current estimates, Royal Mail may need to undertake between 5,000 and 6,000 redundancies between now and August 2023. IDS explained Royal Mail's workforce will have roughly 10,000 fewer roles on August 2023 than it did a year earlier.
The picture is more rosy at GLS, its international operation which trades across the US, Canada and Europe. GLS remains on track to meet full year expectations of an adjusted operating profit between €370 million and €410 million.
IDS once again flagged the prospect of a separation, should the UK Royal Mail unit continue to be a laggard.
At the other end of the FTSE 250, Petrofac rose 6.9%. Peel Hunt lifted the energy industry services provider to 'buy'.
Hipgnosis Songs Fund added 4.9% on a share buyback plan. The music intellectual property investor said any shares repurchased will count towards its buyback authority of roughly 15% of its stock.
Amigo jumped 52% as it will soon resume lending, initially through a pilot scheme.
Amigo paused all lending in November 2020 due to the Covid-19 pandemic. It had then agreed with the UK Financial Conduct Authority that it would not lend again without regulatory approval.
The FCA said Amigo would not be permitted to lend again without first passing a series of conditions. The Bournemouth, England-based firm needed a new business scheme to get a watchdog green light. This occurred in May. The scheme was to settle customer claims following probes from UK regulators into mis-sold loans.
Shares in AIM-listed Morses Club surged 31%. The home collected credit provider also is going through the process of a scheme of arrangement to deal with customer redress claims.
Stocks in New York are called higher. The Dow Jones Industrial Average is called up 0.5%, the S&P 500 up 0.3% and the Nasdaq Composite 0.2% higher.
JPMorgan Chase shares were up 2.4% in pre-market trade. The bank reported a third-quarter earnings beat, despite posting weaker profit.
Reported revenue in the third-quarter of 2022 climbed 10% year-on-year to $32.72 billion from $29.65 billion. Revenue beat a CNN-cited forecast of $32.1 billion.
Net income declined 17% to $9.74 billion, however, from $11.69 billion. The lender took a $1.54 billion credit provision, compared to a net benefit of $1.53 billion a year earlier.
Earnings per share faded 17% year-on-year to $3.12 from $3.74, though this was above CNN-cited consensus of $2.90.
Brent oil was quoted at $93.75 a barrel midday Friday, down from $94.07 late Thursday. Gold traded at $1,665.40 an ounce, largely flat from $1,665.31.
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