The FTSE 100 rebounded sharply today after the government imposed a UK coronavirus lockdown and the US Federal Reserve announced an unlimited bond-buying spree yesterday.
Britain’s blue-chip stock index jumped 4.3 per cent higher in morning trading to climb back above 5,000 points to 5,206. The FTSE 100’s rise made up for the 3.7 per cent fall seen yesterday.
It leapt as the UK entered its first day of an enforced lockdown where all shops save supermarkets and pharmacies closed their doors. The government instructed households not to leave home to exercise more than once per day, or except to buy food and medicine.
In a televised address to the nation yesterday, Johnson told people they should not leave their houses except for food and medicine or to exercise once a day.
“From this evening I must give the British people a very simple instruction – you must stay at home,” Prime Minister Boris Johnson said. “If you don’t follow the rules the police will have the powers to enforce them.”
Meanwhile the Fed yesterday vowed to buy up bonds at an unlimited rate to offer a further buffer to the US economy.
The Fed also announced it would support $300bn (£260bn) of lending to companies and households, including by directly buying corporate debt, in its latest massive intervention into the economy.
UK investors reacted favourably to the fresh measures. The FTSE 250, which includes the 250 companies below the FTSE 100, rose 4.3 per cent.
“Stock markets have bounced back after a series of measures and new data on coronavirus cases gave investors more confidence that the crisis can be resolved,” Russ Mould, investment director at AJ Bell, said.
“Central banks are doing everything they can to provide support to the markets including the US Federal Reserve’s unlimited bond buying.
“The UK’s stricter lockdown rules provide some hope that the spreading of the virus can be slowed in this country,” AJ Bell investment director Russ Mould said.
“And the fact that Italy has recorded a smaller increase in coronavirus cases for the second consecutive day would suggest that its containment measures are working.”
FTSE 100 stocks jump
Miners and oil producers made the biggest gains on the FTSE 100 this morning. BP soared 16 per cent on the Fed’s bond-buying stimulus. And Evraz rocketed 12 per cent higher.
Carnival, which operates the Diamond Princess cruise ship quarantined over a coronavirus outbreak, leapt nine per cent as investors became more optimistic.
Other big risers included tour operator Tui, which rose 8.6 per cent to 338.7p per share after posting huge declines over the last few weeks.
Just Eat Takeaway also jumped almost 10 per cent as the UK began its first day of coronavirus lockdown.
“Restaurants and cafes will be allowed to stay open only for food delivery and takeaway services,” Mould explained. “With more people afraid of leaving their home, Just Eat’s platform could see a significant increase in demand.”
In fact only three FTSE 100 stocks posted falls greater than one per cent this morning. ITV continued yesterday’s drop by falling a further 2.9 per cent after scrapping its dividend and abandoning guidance.
And housebuilder Persimmon slipped 2.3 per cent, while drugmaker Astrazeneca fell 1.3 per cent.
European stocks soar on Fed promise
Germany’s Dax index surged 6.5 per cent this morning, France’s CAC was five per cent higher and the European Stoxx 600 index was also up five per cent.
Asian markets were lifted overnight by the news as well as early signs of a return to normality in China.
Yet US stock markets fell again yesterday as Congress failed to agree on a big, almost $2 trillion, fiscal package to support companies and workers.
“Yesterday’s slide in equity markets, and US markets in particular, owes much to scepticism that politicians on [Washington DC’s] Capitol Hill will be able to set aside their differences to at least get instant cash cheques to US families,” said Michael Hewson of CMC Markets.
Investors believe only a huge injection of money into the economy can support growth as businesses shut down and people stay indoors, denting both supply and demand.
They have also been wracked by uncertainty about the size of the upcoming economic hit. International Monetary Fund (IMF) chief Kristalina Georgieva yesterday said: “We will face recession at least as bad as during the global financial crisis or worse, but we expect recovery in 2021.”
Light at the end of the tunnel?
Joe Healey, investment research analyst at The Share Centre, argued markets like the FTSE 100 were responding to the UK coronavirus lockdown as much as economic measures.
“For the last few weeks we have said the primary data markets are reacting to, is the number of new cases and deaths rather than monetary and fiscal policy,” he said. “This highlights our view some investors are starting to see light at the end of the tunnel. Of course, there remains uncertainty ahead but it seems we are starting to take steps in the right direction for the UK economy.
“What is also important to note is this is now not just the government’s priority but society’s priority. If the UK public react as they should we may start to see the curve flatten which should provide markets the solid floor they are so desperately craving.”
The FTSE 100 and European stocks’ big jumps came as new economic data showed the UK economy is set for a deeper recession than it experienced after the financial crisis.
Closely-followed IHS Markit data recorded the worst blow to the UK economy in the last 20 years.