By The cult of Boris which was hanging over the Conservatives like a charm of enchantment has for now been broken, sending the pound higher, after the former Prime Minister said he would not stand again.
Westminster is rife with speculation that he had not garnered enough support from MPs, despite his protestation of the contrary.
He had threatened to cause fresh political instability, given that it’s less than two months since he left the job, so his retreat from the race brought a sigh of relief for sterling and an even bigger sigh of relief on the bond markets.
The pound is up by more than 0.6% to $1.136 with former Chancellor Rishi Sunak now favourite to take the top job.
There is a growing chance that Penny Mordaunt could also secure the backing of 100 MPs, the threshold needed to keep her in the running, the outcome of which could still be decided by party members.
Given her popularity among grass roots Conservatives we could see a Groundhog Day scenario emerging where the party faithful elect the candidate less popular with MPs, which could add to the clamour for an early general election.
But with Liz Truss out of the job and Boris Johnson out of the running it’s been enough to help push down UK borrowing costs.
10-year gilt yields have fallen back sharply from above 4% on Friday to 3.8% in early trading.
It’s an indication that bond vigilantes have been pacified by the expectations of a calmer political horizon ahead with fiscal responsibility forecast to be the new mantra of the incoming Prime Minister.
Whoever clinches the leadership, faces a daunting task given the looming recession, volatile energy prices, continued supply chain tangles and labour shortfalls and a Bank of England determined to raise interest rates in the face of a shuddering economy to bring rampant inflation under control.
On a broader level, investors are catching glimpses of light at the end of a tough tunnel of monetary tightening and that’s helping to inject some optimism into financial markets.
Even though more rate hikes are expected from the Federal reserve, comments from Janet Yellen, the US Treasury Secretary that high inflation does not look like it’s become entrenched in the economy, has led to hopes that there will be a gentler path of rate rises ahead.
There is likely to be a certain amount of treading water ahead of a heaving week of results with some big hitters on indices reporting financial results.
The impact of the super-strong dollar is expected to weigh in pretty hard on the bottom line of some of the world’s biggest companies.
From Alphabet on Tuesday to Amazon on Thursday, investors will be assessing the currency headwinds for their overseas earnings as revenues will be reduced when converted back to dollars.
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