Starmers Fall & Oil at 104|Can FTSE Hold?

The £10,363 Question

The FTSE 100 closed up half a percent on Thursday. That is the number that does not fit.

Health Secretary Wes Streeting had just resigned from Cabinet, called on Keir Starmer to stand down, and told the country plainly that the Prime Minister would not lead Labour into the next election. Four junior ministers had already walked. More than eighty Labour MPs had publicly urged Starmer to quit. And yet London's benchmark equity index added forty-seven points.

The question is not whether political upheaval is bad for markets. The question is what kind of political upheaval this is — and what it means for the cost of borrowing.

Gilt yields told one part of the story. The ten-year yield fell to five percent on Thursday from five-point-zero-seven the day before. Sterling slipped against the dollar to one-point-three-four-eight, but held ground against the euro. The bond market, in other words, was not pricing a crisis premium. It was pricing a succession — a change in government direction rather than a collapse of fiscal discipline.

That distinction matters for FTSE positioning. Foreign long-only holders who sold UK equities through the local election shock last week — when Labour lost councils and Reform UK surged — did not add to their exit. Price action on Thursday, interpreted from net FTSE 250 flow data, shows domestic institutional buying absorbed the political noise. The FTSE 250, which tracks domestic economy exposure far more closely than the FTSE 100, actually gained one-point-three percent. That is an institutional vote that the Streeting resignation accelerated a process rather than triggered a rupture.

Streeting himself confirmed the direction of travel: he told the Progress group conference he would stand in any contest, called Brexit a catastrophic mistake, and backed rejoining the European Union. Andy Burnham had already announced he would contest a by-election to re-enter Parliament. A Labour leadership race is now a question of timing, not of whether.

The capital flow interpretation here is constrained. Domestic institutional net buying on Thursday is observable from price action alone — the specific size of foreign-to-domestic rotation is not in the news pool. What is clear is that the gilt market absorbed the resignation without repricing a fiscal stress scenario, and equities tracked that signal rather than the political headline.

The residue is what the gilt calm does not settle: if a leadership race runs for months alongside a war-elevated oil price, will the rate path absorb both pressures simultaneously?

Hormuz at $104

The answer to that question arrives from a different direction — and it was already in the oil price before Streeting's letter reached Downing Street.

Brent crude settled above one hundred and four dollars a barrel on Thursday. That number is the mechanism the gilt market has not yet fully priced. Trump's meeting with Xi Jinping in Beijing produced a joint statement that the Strait of Hormuz "must remain open," but Iran's response — demands for war reparations, sovereignty recognition over Hormuz, and full sanctions relief within thirty days — made clear the waterway will not reopen on a schedule the oil market can rely on.

What that means for UK rate expectations is concrete. UK CPI is already tracking above target. Heathrow reported Middle East passenger traffic down more than fifty percent in April. Barratt Redrow, in its April update, named the Iran war alongside inflation fears as the twin pressures that drove its share price to a thirteen-year low. These are not abstractions — they are the transmission channels through which a foreign supply shock re-enters domestic cost structures and, ultimately, Bank of England policy.

The FTSE 100 opened lower on Tuesday when US-Iran ceasefire talks stalled and Brent was quoted at one-thirteen. By Thursday the oil price had pulled back to one-oh-four as Trump-Xi optimism entered the flow. That thirty-day window between now and any credible Hormuz reopening is the position-pressure variable that shifted. Energy funds and commodity-trading advisers who had partially covered short positions on the peace-talks narrative began rebuilding long exposure when Iran's counter-proposal landed. That is the upstream pressure change, not the headline itself.

Shell and BP each gained fractionally on Tuesday despite the broader FTSE falling one-point-one percent. Energy sector net flows were the single domestic offset to foreign selling pressure that morning — the capital flow from non-energy FTSE longs into energy names is readable from the intra-sector divergence even without explicit flow data.

BP carries an additional discount the market is currently working through. Chairman Albert Manifold was removed with immediate effect on Tuesday over what the board called serious concerns about governance standards. The stock fell nine percent intraday before settling four-point-six percent lower. That governance discount sits inside the oil-price tailwind: BP holders are now pricing a leadership gap alongside an oil price that, in a different governance environment, would be a straightforward earnings upgrade. The board named Ian Tyler as interim chairman and confirmed a permanent search. That open question — whether the successor recalibrates BP's strategic direction on fossil fuel investment — is exactly what the oil-price rally would otherwise be answering cleanly.

What the oil story leaves unresolved is where UK equity bulls find the growth signal that justifies the FTSE 100's current price-to-earnings ratio of sixteen. Defensive value and commodity exposure explain the index's resilience under inflation pressure. They do not explain the flow that has been pulling the index higher over the last twelve months.

Scottish Mortgage's Wager

That growth signal is Scottish Mortgage — and it traces directly to a company that has never traded on a UK exchange.

Scottish Mortgage sold one-point-seven million treasury shares on May 18. That is not a distribution decision; it is a NAV management event ahead of the largest IPO in stock market history. SpaceX is set to list on Nasdaq on June 12 at a target valuation of one-point-seven-five trillion dollars. Scottish Mortgage currently holds its SpaceX stake at one-point-two-five trillion, and that holding represents nineteen-point-three percent of the trust's total portfolio.

The arithmetic is simple: a successful IPO at the target valuation would lift the trust's NAV by roughly forty billion pounds in sterling terms. For holders of Scottish Mortgage shares, which have risen fifty-two percent in the past twelve months, the IPO is the confirmation event for a position-building thesis that has been running for three years.

The complication is in SpaceX's financials. The company reported a four-point-nine-four-billion-dollar loss in 2025 on revenue of eighteen-point-seven billion, with a further four-point-three-billion-dollar loss in just the first quarter of 2026 on sales of four-point-seven billion. Starlink generated eleven-point-four billion in 2025 revenue and is the only profitable segment. The remainder of the business is absorbing massive spending on data centre infrastructure for xAI.

For public market investors who have not held SpaceX through private rounds, the IPO pricing at ninety-four times sales requires a growth-at-all-costs acceptance that is structurally different from the FTSE 100's current earnings-yield appeal. That divergence matters for Scottish Mortgage flows. Holders who bought the trust for SpaceX exposure are now sitting on a Nasdaq-correlated position inside a London-listed vehicle. If the IPO launches at par and sustains, passive FTSE 100 flows into Scottish Mortgage track US tech momentum, not UK domestic value.

That is the frame disturbance. The FTSE 100's resilience under political pressure and elevated oil has been read as evidence of domestic institutional conviction. The Scottish Mortgage signal complicates that reading: part of the institutional buying pressure in the index is a proxy for a US mega-IPO trade, not a UK earnings recovery thesis.

The monitoring variable through June 12 is whether Scottish Mortgage's discount to NAV narrows or widens as SpaceX's IPO date approaches. If it narrows — meaning market participants are willing to pay closer to full NAV for the trust — domestic institutional flows are treating the SpaceX trade as live. If the discount holds or widens despite a rising headline valuation, that is the signal that the FTSE 100's growth-proxy bid is thinner than the index level implies, and the oil-rate compression trade would remain the dominant explanation for where the index stands today.