Dear reader,
Two weeks ago I wrote that Burnham was coming. Now he is here. Andy Burnham was confirmed as Labour leader on Friday at a special conference at the TUC headquarters, and next week he replaces Sir Keir Starmer in Downing Street. A man twice rejected as Labour leader, who left for Manchester, had a safe seat vacated to get him back into Parliament, and is now handed the country without a single voter being asked. His acceptance speech promised “hope” and “the Labour they once knew.” What it did not do was answer the only question the market actually cares about.
That question is the Chancellor, and it carries more weight than the man at the top, because the Chancellor sets the gilt yield, the level of sterling and which half of the equity market outperforms. The story moved fast this week. Rachel Reeves has conceded she does not expect to stay, and Ed Miliband, the frontrunner until a few days ago, has been pushed aside amid unease in the City over his net-zero dogmatism and North Sea stance, now tipped for the Foreign Office instead. In his place, Home Secretary Shabana Mahmood has emerged as the near-certain pick, with one source telling the FT she is “nailed down” for the job [5].
Markets have already voted. On the Mahmood reports sterling rallied to a one-year high against the euro and gilt yields edged lower, the market reading a Blue Labour pragmatist with no fixed economic positions as the steady, spending-disciplined option rather than the interventionist one it feared. That reaction is the tell. A firmer pound and lower yields favour the domestic and rate-sensitive side of the market, the housebuilders, the REITs and the mid-caps, while the big dollar earners of the FTSE 100 lose a little of the translation tailwind a weaker pound would have handed them. The confirmation could come within days of Burnham taking office, which makes next week, not this one, the real event.
There was at least some cover for the handover in the data. UK GDP rose 0.1% in May, taking three-month growth to 0.7%, the fastest in 13 months, and the employment figures gave the Bank of England no reason to rush. A firmer economy hands the incoming government a slightly better starting position than the headlines would suggest. Whether it uses that room sensibly is a different matter.
The Week in Numbers
The index moves flattered the week. Both the FTSE 100 and FTSE 250 closed up 1.0%, the blue chips at 10,600.37 and the mid caps at 23,604.83, while the AIM All-Share slipped 0.6% to 759.31 [1]. Underneath those tidy gains the tape was firmly risk-off, and the real action was not in the index level but in individual stocks, where bids, stakes and trading updates did far more work than the macro. Money left the technology names in a hurry and chased anything with a corporate catalyst attached.
The Big Story: The World Keeps Buying Britain
Two weeks ago the headline here was that America was buying Britain, with Prologis chasing SEGRO and Castlelake circling easyJet. This week the buyers got louder and less exclusively American.
Rotork (LON:ROR), the flow-control engineer, jumped 63.86% to 486p after ABB, the Swiss industrial group, moved to a recommended £4.1 billion cash offer at 506p a share, a 73% premium to the undisturbed price [2][3]. The shares now sit just below the offer, which is the market’s way of saying it expects the deal to complete. I wrote up ABB’s interest when it first surfaced; this week it hardened into a board recommendation.
It did not stop there. easyJet (LON:EZJ) climbed 14.21% to 671.80p as the Castlelake situation that dominated this letter a fortnight ago firmed into a possible offer, with the shares now trading toward a bid level around 715p [3]. And Vodafone (LON:VOD) rose 19.98% to 118.35p after French telecoms billionaire Xavier Niel, through his family vehicle Vega, bought e&’s entire 16.2% stake for £4.4 billion to become the largest shareholder in the group, a move New Street Research followed with an upgrade to Buy [3]. Niel has been clear he is not bidding for the whole company, but a stakeholder of his profile arriving after a weak run tells you how cheap the shares had become.
Three overseas buyers, three different accents, one message. UK-listed assets are trading at a discount that global capital is no longer willing to ignore. Whether every one of these situations completes matters less than the pattern, and the pattern is not slowing down.
Risers
The takeovers led the FTSE 250 higher, but the mid-cap table had a second story in it: self-help that worked. Behind Rotork, Hays (LON:HAS) rose 26.34% to 54.20p after a fourth-quarter update guided full-year operating profit to the top of the £37 million to £46 million consensus range, helped by consultant productivity and cost savings delivered three years ahead of target [4]. In a recruitment market nobody would call strong, that is a company doing the work itself rather than waiting for the cycle. Vistry Group (LON:VTY) added 14.85% to 281.60p as housebuilders caught a bid on firmer housing data, a familiar move for a share that has spent the past year deeply out of favour. Bridgepoint Group (LON:BPT) rose 12.48% to 322.60p and Me Group International (LON:MEGP) gained 11.61% to 115.40p, rounding out a mid-cap top five that had almost nothing to do with the chip selloff hitting the rest of the market [2].
The FTSE 100 risers told the same story in blue-chip form. Vodafone (+19.98%) and easyJet (+14.21%) came from the corporate-action names above. Kingfisher (LON:KGF) rose 10.54% to 304.20p, the B&Q and Screwfix owner riding the same domestic-recovery optimism lifting the housebuilders. BP (LON:BP.) gained 7.14% to 517.10p as Brent crude reversed higher, and Mondi (LON:MNDI) added 6.55% to 752.00p [2]. Not a utility in the weekly five, even though the defensive names did the heavy lifting at the index level on Friday’s worst session.
Fallers
If the risers were about bids and self-help, the fallers were about one thing. A global semiconductor selloff ran through markets all week and peaked when Nvidia briefly lost its crown as the world’s most valuable company to Apple, with the Nasdaq down 1.3% on Friday alone [1]. It fell hardest on anything in London carrying US technology exposure, and both fallers tables read like a map of that exposure.
In the mid caps, Raspberry Pi Holdings (LON:RPI) took the worst fall of any name, down 20.32% to 667.75p [2]. As one of the very few London businesses tied directly to compute hardware demand, it sits at the epicentre of a chip derating, and it traded like it. Behind it came the technology trusts. Edinburgh Worldwide Investment Trust (LON:EWI) fell 9.95% to 249p, Herald Investment Trust (LON:HRI) lost 8.54% to 2,890p and Polar Capital Technology Trust (LON:PCT) gave up 7.86% to 627.50p [2]. All three run portfolios stuffed with US and global technology, so a Nasdaq down week reads straight through their net asset values, and any widening of the discount adds to it. Plus500 (LON:PLUS) fell 14.74% to 4,210p [2]; the contracts-for-difference platform earns from client trading activity, which leaves it exposed to shifts in market conditions and to the tone of any update.
The blue-chip fallers rhymed. Scottish Mortgage Investment Trust (LON:SMT) led the FTSE 100 down, off 8.05% to 1,359p [2], for the same reason as the mid-cap trusts: its book leans on US megacap technology and private growth, and a chip selloff is its worst weather. The miners then supplied three of the five. Antofagasta (LON:ANTO) fell 7.60% to 3,491p and Anglo American (LON:AAL) lost 6.10% to 3,400p, both copper-facing and softer as Chinese demand worries resurfaced [2]. Fresnillo (LON:FRES) is the more interesting one, down 7.36% to 2,442p even with gold near 4,014 dollars an ounce [1][2]. After a run that saw the shares multiply through 2025, a pullback of that size looks closer to profit-taking than to any change in the metal itself. St James’s Place (LON:STJ) completed the group, the wealth manager easing 6.79% to 1,077p [2] in a week that offered asset gatherers nothing to hold on to.
Two single names outside the tables are worth flagging. Burberry (LON:BRBY) was Friday’s worst large-cap performer, down 6.4% to 1,049p, despite reporting retail revenue up 5.1% to 455 million pounds in the 13 weeks to 27 June [1]. The reaction sat with the outlook rather than the print, management flagging caution on the geopolitical and macro backdrop. Frasers Group (LON:FRAS) fell around 5% on results, declining to give financial guidance while its bids for Hugo Boss and Accent Group remain live, though Jefferies called it a solid year and still sees the shares as undervalued [3].
Global Signals
Oil went the opposite way to two weeks ago, and BP’s place on the risers table is the proof. Back then Brent slid below 76 dollars on US-Iran optimism; this week that trade reversed hard, with the commander of Iran’s Revolutionary Guards Aerospace Force vowing continued strikes and Brent closing back up near 86.53 dollars a barrel [1]. If you own Shell or BP for the income, the dividend thesis is intact. If you own them for a price recovery, you are once again a hostage to a diplomatic outcome that has fooled the market in both directions all year. Gold held near record ground at 4,014 dollars.
The chip selloff also explains the split between the indices. As IG’s Chris Beauchamp put it, money is deserting chip and AI names and flowing to areas where those are less prominent, which is why the FTSE 100, light on technology, outperformed a falling mid-cap index on Friday [3]. The composition that made the blue chips look dull through the whole AI rally is the same composition that protects them now, and for as long as the rotation runs, the index’s lack of a technology engine is a feature rather than the flaw it has looked like for two years. On rates, the constructive GDP print does not force the Bank of England’s hand, but it does not help the doves either. Services inflation remains the variable that decides the next move, and the names most exposed to an upside surprise are the unglamorous ones: infrastructure trusts, rate-sensitive REITs and the more heavily indebted mid-caps. Sterling firmed to 1.3453 dollars and ten-year gilts yielded 4.53% into the close [1]. Watch the currency above everything else next week.
One to Watch: The Chancellor — next week
The single most important event on the UK calendar is not a results date. It is whoever walks into Number 11. Burnham takes office next week and the Chancellor appointment is expected to follow almost immediately. A Miliband appointment would reprice the fiscal-rule debate overnight and set off exactly the split laid out at the top of this letter. The point for now is the timing: the market prices this decision the moment a name leaks, not when the confirmation is official, so the window to think about it is this weekend, not next Friday.
The Week Ahead
Monday brings first-quarter results from Ryanair (LON:RYA). Beyond that, three things decide the week. Whether the chip selloff extends or the Nasdaq stabilises, which sets the tone for every UK technology proxy. Whether the bid wave delivers a firm easyJet offer or leaves the shares stranded below the mooted price. And the Chancellor, which will move sterling and gilts more than any earnings release. Position for the politics, not the print.
Thanks for reading,
Ollz
This article is for informational and educational purposes only and does not constitute financial advice. The author may hold positions in securities mentioned. Always do your own research and seek independent financial advice before making any investment decision. Capital is at risk.
Sources
[1] Alliance News / LBC — https://www.lbc.co.uk/article/f7f3ffd7d5004ec690082bae53950d38-5Hjddkn_2/
[2] This Is Money — weekly share price data — https://www.thisismoney.co.uk/money/marketdata/
[3] Proactive Investors — https://www.proactiveinvestors.com/companies/news/1095540/ftse-100-live-uk-growth-and-new-chancellor-in-focus-rotork-agrees-to-takeover-1095540.html
[4] Investing.com — https://www.investing.com/news/stock-market-news/hays-sees-fy-profit-topping-forecasts-as-productivity-gains-offset-lower-fees-4785385