On the face of it, it is remarkable that interest rates could rise by a threatened 5 percentage points and the stock market end the day higher than it began. Government bond futures also scored gains.
Such paradoxical moves weres only possible because investors - correctly - smelt an imminent devaluation bringing lower interest rates and renewed economic growth in its wake.
Last night sterling was suspended at its own request like a company that has finally hit the limits of financial reality. In many respects financial markets are wiser than politicians or many company chairman and have a clearer idea of which policies will work and which will not.
Some investors - those that took the opportunity to sell yesterday afternoon when the market raced up nearly 90 points - were worried that interest rates would go up yet again.
But the prospect of battling on with high interest rates amid repeated assaults by currency speculators would have undermined already fragile forecasts for overall earnings growth, dealt the likes of Pilkington and Tarmac a severe blow and pushed investors en masse into utilities and Glaxo.
Depending on where sterling finds a new level, exporters and dollar earners will find life easier. Though exports from the UK account for only 6 per cent of stock market profits, North American earnings account for a further 20 per cent or thereabouts. Devaluation, when the risk of renewed inflation is so low, will also be seen by investors as a signal that the Government had made getting the economy going again a clear priority.
Investors should be prepared for a switch from defensive utilities and food retailers to recovery stocks such as stores, including DIY, such as Kingfisher and hotels such as Forte. Companies with German businesses such as British Vita, RMC and GKN might also benefit.
Dollar earners are bound to stay in favour, helping the beleaguered oil sector, except for BP, where dividend worries persist, and the drug companies. More caution is needed for construction sector for an upturn here will take a long time to emerge.Reuse content