FTSE 100 breaks 6,000 barrier as vaccine hopes and Fed pledge boost markets
The FTSE 100 broke through the 6,000-point milestone in a positive start to the week’s trading today, buoyed by hopes of a vaccine and more Federal Reserve stimulus.
Easing lockdowns and lower infection rates in Europe infection hotspots Italy, the UK and Spain also boosted London’s blue-chip index. The FTSE 100 closed 4.5 per cent higher at 6,058 points.
It is the first time the index has risen above 6,000 points mark since the end of April.
The FTSE 250 surged 3.6 per cent higher to close at 16,219 points.
European indices followed the FTSE 100’s trajectory. The Europe-wide Stoxx 600 was up almost 3.5 per cent. And France’s Cac surged 4.3 per cent, while Germany’s Dax rocketed 4.6 per cent.
“A large market rally has been fuelled by positive data on death and infection rates in countries which are easing lockdown conditions,” AJ Bell investment director Russ Mould said.
Fed boosts hopes of more US stimulus
Mould added: “Equities also got a boost as US Federal Reserve chair Jerome Powell told US television the Fed ‘wasn’t out of ammunition by a long shot’ despite the massive injections of liquidity into the financial eco-system it has already delivered.”
In an interview with CBS on Sunday, Powell predicted the US economy could shrink 20 to 30 per cent during the pandemic. He also warned a recovery may not come until as late into 2021. He added a full rebound may not happen until a vaccine is found.
However, his comments on additional stimulus boosted the FTSE 100. Powell said the Fed was certainly “not out of ammunition by a long shot”, and could expand its lending programme if necessary.
The Federal Reserve slashed interest rates to nearly zero in March to support the economy, while the government created a multi-trillion dollar stimulus package that expanded unemployment benefits.
“It may well be that the Fed has to do more… And the reason we’ve got to do more is to avoid longer run damage to the economy,” Powell said in the interview.
Vaccine trial bolsters investor confidence
Another factor driving up markets is the Moderna coronavirus vaccine.
Moderna’s early-stage human trial produced Covid-19 antibodies in all 45 participants, the biotech firm said today.
That saw the Nasdaq-listed company’s shares surge 34 per cent in pre-market trading.
Each trial participant received a dose of between 25 micrograms, 100 mcg or 250 mcg, CNBC reported. After a second dose antibodies were at levels comparable to people who have recovered from coronavirus, Moderna said.
That helped settle FTSE 100 traders’ nerves ahead of a dizzying week of economic releases.
A jobs report comes out tomorrow, before UK inflation is revealed on Wednesday. Flash economic readings follow on Thursday before retail sales land on Friday.
But a drop in countries’ daily coronavirus infection rates and the Fed chairman’s comments bolstered markets, Spreadex financial analyst Connor Campbell said.
“With Jerome Powell promising that the Federal Reserve isn’t out of ammunition ‘by a long shot’, and the likes of Italy, Spain and the UK reporting their lowest number of coronavirus deaths in months, the markets found an excuse to start clawing back the losses incurred last week,” he said.
US stocks power up on Fed optimism
US stocks naturally benefited from Powell’s comments about unlimited stimulus.
The S&P 500 soared almost three per cent while the Dow jumped 3.4 per cent. The tech-heavy Nasdaq was not far behind, rising 2.5 per cent.
David Madden, market analyst at CMC Markets, said US stocks had been boosted by the “optimistic commentary” from Powell, as well as vaccine hopes.
“Jerome Powell did a good job at putting people’s fears at ease as he believes the US economy recovery in the latter half of the 2020, but he cautioned that a without a vaccine, a full recovery would be difficult to achieve,” he said.
“The comment he made about not betting against the US economy, reminded traders of the market saying ‘don’t fight the Fed’, which implies the central bank has the fire power to push the economy in the right direction.”
Asian markets also gained overnight, despite grim figures from Japan showing it had slipped into recession.
The world’s third-largest economy shrunk 3.4 per cent on an annualised basis, with the fourth quarter of 2019 plunging 7.3 per cent.
Japan’s Nikkei index was up 0.48 per cent, while the Shanghai Composite increased 0.25 per cent. The Hang Seng index climbed nearly 0.6 per cent.
Oil prices boost miners on FTSE 100
The FTSE 100’s positive start to the week came as oil prices staged something of a recovery.
US crude oil jumped 5.6 per cent to $31.07 while Brent crude – the European standard – rose 4.2 per cent to $33.85. The relaxing of lockdowns in some parts of the world has helped ease the pressure on oil, which peaked while nobody used fuel in lockdown.
“Equities and oil are higher as investors cautiously welcome signs lockdowns are ending,” Markets.com’s chief analyst, Neil Wilson, said. “But markets remain in this tug-of-war pattern where we simply don’t know whether the damage will be a lot worse than feared or the recovery will be much swifter.”
Still, FTSE 100 commodities stocks reacted well to the modest recovery in oil prices.
Lamprell’s shares skyrocketed more than 20 per cent, while BP and Shell jumped 6.05 per cent and 5.83 per cent respectively. Tullow Oil climbed nearly nine per cent in early trading, before settling up five per cent.
Miners were also among the FTSE 100’s top risers in early trading. Hochschild jumped 13.5 per cent, Fresnillo was up nearly eight per cent. Anglo American climbed 6.1 per cent to 1,521p.
“The resources sector helped power gains in London as commodities rose on hopes for a return to more normal levels of demand,” AJ Bell’s Mould added.
“A key question for the FTSE 100 is whether it can get above the 6,000 mark and stay there,” AJ Bell’s Mould said. “That will almost certainly depend on whether rates of infection remain low as people return to work.”
Travel stocks rise as lockdowns relax
FTSE 100 travel stocks jumped as countries start to ease restrictions, with Italy today opening up shops, restaurants and salons.
Tui was trading up 11.36 per cent, even after announcing last week that 8,000 jobs are at risk due to the pandemic.
The coronavirus pandemic, which has put the tourism industry on hold as governments have implemented travel bans and restrictions on movement, will impact Tui’s earnings this year. The travel operator said it expects turnover and Ebit to “decline significantly”.
Shares in Ryanair have jumped nine per cent despite the airline warning 2021 passenger numbers will fall below 80m. That is down from its original target of 154m.
Chief executive Michael O’Leary intends to start 1,000 flights from July. That is despite government plans to introduce a two-week quarantine for people arriving in the UK.
O’Leary told the BBC: “It’s idiotic and it’s un-implementable. You don’t have enough police in the UK.”
Mould said Ryanair’s outlook was “merely terrible rathe than apocalyptic”.
“Even if the company grumbled heavily about the state aid given to some of its competitors,” Mould added.
That helped pull up the shares of rival British Airways owner International Consolidated Airlines. Its stock was up nearly 10 per cent before trimming gains to 6.8 per cent.
Read more: Oil prices bounce back as demand drop forecasts trimmed
Supermarkets were all lagging behind this morning, with Ocado, Tesco, and Morrisons all trading down.
Michael Hewson, chief market analyst at CMC Markets, said: “The food sector has seen a big increase in turnover as a result of the economic lockdown. As such [they] have seen revenues surge. However, this has come at the expense of significant increase in costs, so the overall benefit hasn’t been that great.”