“There is no question that recent events have shattered confidence in the… current government, and trust once foregone is usually very difficult to get back,” said CMC Markets’ Michael Hewson.
“The wider question now is what happens next with respect to any new budget, and whether new Chancellor Jeremy Hunt can stabilize the ship at a time when global interest rates are rising anyway.”
The calm also lifted equities, with London in positive territory in the morning. There were also gains in Paris and Frankfurt.
Asia started the week in mixed fashion as Friday’s rally petered out.
The latest strong US inflation reading ramped up bets that the Federal Reserve will hike borrowing costs by 75 basis points twice more before the end of the year, stoking concerns the world’s top economy will flip into a recession.
All three main indexes on Wall Street finished sharply lower Friday.
There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid strategy of lockdowns that has hammered the economy this year.
“We expect that the existing Covid measures, that is the number of Covid tests, quarantine days, etc, will remain the same after the Party Congress,” said Iris Pang at ING.
“This will continue to put fiscal pressure on local governments, and when the number of Covid cases increases, we should keep seeing localized lockdowns.”
Traders are also keeping tabs on looming earnings reports, with expectations that higher rates and prices will have eaten into companies’ bottom lines.
Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan’s refusal to tighten monetary policy, citing a need to support the economy.
The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month.
Key figures around 0720 GMT
Tokyo – Nikkei 225: DOWN 1.2 percent at 26,775.79 (close)
Hong Kong – Hang Seng Index: UP 0.2 percent at 16,612.90 (close)
Shanghai – Composite: UP 0.4 percent at 3,084.94 (close)
London – FTSE 100: UP 0.6 percent at 6,896.53
Pound/dollar: UP at $1.1262 from $1.1180 Friday
Dollar/yen: DOWN at 148.61 yen from 148.72 yen
Euro/dollar: UP at $0.9748 from $0.9724
Euro/pound: DOWN at 86.55 pence from 86.93 pence
West Texas Intermediate: UP 1.0 percent at $86.47 per barrel
Brent North Sea crude:Â UP 1.0Â percent at $92.54 per barrel
New York – Dow: DOWN 1.3Â percent at 29,634.83 (close)