FTSE 100 closes higher but loses ground on second wave fears
The FTSE 100 closed higher today, albeit losing some ground as markets remain jittery on fears of a second coronavirus wave in China.
London’s blue-chip index climbed to trade 0.72 per cent higher during the afternoon afternoon, before closing up 0.18 per cent.
The rally came despite figures released earlier today showing UK inflation falling to a four-year low in May. The Consumer Price Index (CPI) dropped to 0.5 per cent, as demand slowed during lockdown.
The BoE’s Monetary Policy Committee is due to meet tomorrow, and it is expected to include some ramping up of its quantitative easing programme.
“It appears that the prospects of more monetary support from the BoE and the fear of missing out a renewed rise keep investors on the buy side,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
Additionally, investors are clutching to the expectation that lockdown restrictions in the UK will start to ease again.
“Hopes that Boris Johnson could scrap the two-metre rule soon, in addition to optimism surrounding trade deals with Australia and New Zealand are helping to underpin sentiment,” said Fiona Cincotta, market analyst at Gain Capital said.
However, Ozkardeskaya warns the FTSE rally may be limited “and we shall see waning appetite above the 6300p mark due to the lingering risks.”
The FTSE was also buoyed by positive news from one of Oxford University’s coronavirus treatment trials, which found that a common steroid could significantly reduce the risk of dying from coronavirus.
Drug giant Astrazeneca also said that it hoped to have a vaccine ready by October that would protect people for one year.
The combination offset fears of a second wave after a spike in infections in Chinese capital Beijing.
US stocks open higher for fourth day
US stocks followed the FTSE and extended its gains for the fourth day in a row as signs of fresh stimulus bolstered hopes of a quick economic recovery.
Hopes for recovery had been bolstered by the data showing US retail sales data jumped by a record 17.7 per cent in May, recovering more than half the losses of the previous two months, though industrial output still lagged.
The Trump administration was also reportedly preparing an up-to $1 trillion infrastructure package, a scheme first promised more than three years ago.
Tech stocks led Wall Street’s rally, with the Nasdaq Composite trading up 0.47 per cent. The Dow Jones rose 0.15 per cent on open before easing to trade down 0.21 per cent.
The benchmark S&P 500 opened higher by 11.39 points – 0.36 per cent – before falling back to trade down 0.02 per cent.
Investors are cautious after news that six states report a record number of new coronavirus cases after beginning to reopen their economies.
“This weeks Fed actions have highlighted exactly how reliant investors are upon Powell & co.,” said Joshua Mahony, senior market analyst at IG. “However, government loans and grants are no substitute for actual economic activity.”
Second wave in China sends global stocks lower
The FTSE 100 appeared to buck the trend as global investors turned cautious overnight. A spike in coronavirus cases in China weighed on markets.
Beijing has now reported 130 new cases and is struggling once again to contain the virus. Yesterday the city announced it would close schools in a bid to curb the spread of infection.
South Korea has also reported 43 cases in the past 24 hours, while cases in the US continued to skyrocket as infections in Florida reached a new high.
Japan’s Nikkei eased 0.5 per cent after surging almost five per cent. The Hang Seng index edged up to close 0.29 per cent higher.
The SSE Composite spent most of the session in the red before inching into the green, to close up 0.14 per cent.
European stocks followed the FTSE 100’s lead with investors remaining bullish. France’s Cac climbed 0.92 per cent, before closing 0.78 per cent higher. While Germany’s Dax closed up 0.4 per cent.
FTSE 100 favour domestically-focused stocks
Housebuilders gained ground in today’s session as investors moved towards more domestically-focused stocks.
Berkeley extended its rally to close 4.14 per cent higher despite reporting that profit fell by a third amid the coronavirus disruption.
Travel stocks lost ground after a positive start to the week, as investors remained optimistic on summer holiday hopes, with cruise operator Carnival closing down 5.9 per cent. British Airways owner IAG fell 3.46 per cent, after a brief rally yesterday.
“The risk that another US-centred surge in coronavirus cases could limit tourism numbers has dented confidence in travel stocks such as IAG and Carnival,” said Mahony.
“The outperformance of the FTSE 250 compared with the FTTSE 100 highlights how markets see the risk as being external in nature,” he added.