Tuesday 16 June 2020 4:50 pm

FTSE 100 closes higher on new coronavirus drug hopes

The FTSE 100 extended its gains this afternoon closing up nearly three per cent after a major development in an Oxford University clinical trial.

London’s blue-chip index climbed to highs of 3.53 per cent in the afternoon, before closing up 2.96 per cent. It erased Monday’s losses when traders were jittery on second wave fears.

Read more: Government gives NHS immediate authorisation for coronavirus drug

The FTSE jumped in the last half an hour of the day after the government gave the NHS immediate authorisation to use the first drug shown to reduce the virus death rates.

Trials carried out by Oxford University showed that the steroid dexamethasone had been proven to reduce the risk of death in patients with severe forms of Covid-19.

Investors opened the day higher on news that the Fed would start buying individual corporate bonds, in addition to the exchange-traded funds it is already purchasing. It is part of a continuing effort to support the economy through the pandemic.

Speculation that President Donald Trump is preparing a $1 trillion infrastructure spending plan helped the index inch up throughout the day.

Before the Open newsletter: Start your day with the City View podcast and key market data

“There is nothing like a fresh round of stimulus to boost risk sentiment in the markets,” said Fiona Cincotta, market analyst at Gain Capital. “Fears of a second wave have been calmed by the fact that the Fed has your back and that Trump is prepared to increase spending significantly to inject life back into the economy.”

US stocks extended gains to open higher on the Federal Reserve’s announcement, but momentum slowed down on news that Beijing was due to shut schools on second wave fears.

Read more: Brexit: Boris Johnson says ‘a bit of oomph’ is needed in trade talks

US market gains fade

US stocks started the day off well, rebounding from Thursday’s losses. Investors wobbled last week after a strong rally since the selloff in March but the Fed announcement has settled nerves somewhat.

Markets also welcomed a record increase in retail sales last month, beating expectations. Data from the US Commerce Department showed US retail sales rose 17.7 per cent in May, reinforcing the view that the worst of the economic impact is over.

The Dow Jones opened 3.29 per cent higher, while the benchmark S&P 500 climbed 2.64 per cent. However, gains have now faded as news that Beijing was shutting schools dented investors’ optimism.

The Dow Jones is up 1.93 per cent, while the S&P 500 has fallen back to trade 1.87 per cent higher. The Nasdaq index is up 1.64 per cent at 4.45pm.

FTSE travel stocks push higher on summer holiday hopes

Equipment rental firm, Ashtead Group, led the FTSE 100’s biggest risers today. The announcement that it would maintain its dividend sent shares up 10.76 per cent by the afternoon, to close up 14.37 per cent.

Russ Mould, investment director at stockbroker AJ Bell, said the dividend announcement means the full-year payment is up very slightly on last year “to bot confound analysts’ expectations of a cut and maintain an annual dividend growth streak that stretches back to 2006.”

Mould also points to the mounting speculation that President Trump will announce a $1 trillion spending plan, akin to the New Deal plan in the 1930s.

“Its equipment will be needed if such schemes are to be implemented quickly and it will be interesting to see if US industrial sentiment surveys start to pick up more rapidly,” he said.

Travel stocks also led today’s FTSE risers , with Easyjet climbing 4.66 per cent while British Airways owner IAG finished 5.86 per cent higher.

“The UK focus is geared towards the travel sector, with the likes of Carnival, IAG, and easyJet all surging as they look to capture
 some of the summer demand that has been lost to this crisis,” Joshua Mahony, senior market analyst at IG said.

“While Spain is threatening to retaliate to the UK’s quarantine policy with a like-for-like measure, this could actually provide a boost for airlines as the pressure builds on the government to backtrack on their current stance.”

Traders boosted by Brexit optimism

FTSE 100 traders were also boosted by renewed optimism in the Brexit negotiations following talks between Prime Minister Boris Johnson and EU presidents.

Both sides pledged to push “new momentum” into their talks in order to strike a deal before the December deadline. Boris Johnson, who said both sides needed to add a “bit of oomph in the negotiations”, said a deal could be agreed by next month.

Before the Open: Get the jump on the markets with our early morning newsletter

European stocks also pared back yesterday’s losses, as the pan-European Stoxx 600 climbed 3.4 per cent by 2.30pm. Germany’s Dax jumped 3.79 per cent, while France’s Cac traded up 3.49 per cent.

Additionally, FTSE investors may take some solace in the news that the UK unemployment rate unexpectedly remained unchanged, at 3.9 per cent, in the three months to April.

However, the impact of coronavirus on the job market was stark. ONS figures showed the number of workers on company payrolls fell 612,000 between March and May and vacancies fell to a record low.

Analysts point to the government’s job retention scheme as a buffer through the worst of the outbreak. But, “we can expect to see this start to unravel in the coming months as the scheme is gradually withdrawn,” says Cincotta.

Get the news as it happens by following City A.M. on Twitter