Wednesday 27 May 2020 4:42 pm

FTSE 100 rallies as reopening optimism takes hold

The FTSE 100 extended gains made yesterday as investors focused on the phased reopening of the economy.

London’s blue-chip index closed up 1.26 per cent at 6,144 points as investors took comfort in increased hopes of a recovery.

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The Prime Minister set out plans to reopen parts of the economy from next week, as the number of daily coronavirus cases and deaths fall.

From next week, car showrooms and open markets will reopen, followed by non-essential retail a fortnight later.

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“If reopenings continue to gather pace with a welcome absence of further infections, then travel, airlines, mines and engineering could see further inflows of investor cash,” said Chris Beauchamp, Chief Market Analyst at IG.

A slow reopening of the economy, paired with hopes over potential coronavirus vaccines, helped to reinvigorate the FTSE 100.

“If financial results don’t match expectations in the coming months then the stock market rally could come under threat,” says Russ Mould, investment director at AJ Bell.

Tui continued to lead the FTSE 100’s biggest risers in early trading, with shares jumping 20 per cent before closing up 16 per cent.

It extended the staggering gains made yesterday on the back of news that European holiday destinations could open this summer. It means its share price has now risen 90 per cent since 22 May’s market close.

European markets buoyed by €750bn stimulus package

The FTSE 100’s optimism was mirrored in Europe with shares up across the board after the European Commission unveiled a €750bn stimulus package to help the bloc through the pandemic.

The European Stoxx 600 gained 0.69 per cent before closing flat, while Germany’s Dax closed up one per cent. France’s Cac both jumped 1.41 per cent.

The EU’s package is set to be dividend between €500bn in grants and €250bn in loans. They will be borrowed on financial markets and distributed to member states, in a bid to stop the bloc slipping into recession.

Some European countries, including Spain, Italy and Greece, are expected to restart their struggling economies through borrowing and their reliance on tourism. The Spanish government earlier this week indicated it would be open for visitors from July.

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US-China tensions hold back Asian stocks

The European markets seemed to shake off the growing tensions between the US and China.

However, Asian shares retreated overnight after reports suggested that the Trump administration is considering a range of sanctions against China. In a White House briefing, Trump indicated there will be announcement before the end of the week as anger at China continues to mount.

The Shanghai Composite fell 0.34 per cent while Hong Kong’s Hang Seng index dropped 0.8 per cent. However, the Nikkei 225 soared to a near three-month high at close, boosted by the announcement of a $1.1 trillion stimulus package.

Additionally, news that China had expanded the scope of its national security legislation against Hong Kong did little to quell nerves. Riot police in the city fired on protestors, rekindling concerns about the protests seen last year which hit the territory’s economy.

Read more: FTSE 100 rallies as reopening optimism takes hold

“The one per cent increase currently suggested by the [Dow Jones] futures would take the US index to 25250, a level last seen in early March,” said Connor Campbell, financial analyst at Spreadex. “Whether it not it makes good on that forecasts, however, may be dependent on whether Trump sticks to his word regarding taking action against China.”

Charalambos Pissouros, senior market analyst at JFD Group, said: “Tensions between the world’s two largest economies could jeopardize any potential trade accord, but at the moment, investors appear to be placing more bets on a global economic recovery as governments around the globe continue to ease their lockdown measures.”

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