The FTSE 100 and European stocks rose sharply as investors recovered their poise after a sharp sell-off in global stocks last week, with a falling pound boosting London’s blue-chip index.
The FTSE 100 extended its morning rebound and was trading 2.46 per cent higher in afternoon trading. London’s FTSE 250 index of smaller firms also rose 1.7 per cent.
On the continent, both Germany’s Dax and France’s CAC climbed 1.68 per cent. The continent-wide Stoxx 600 gained 1.43 per cent.
Last week, doubts set in about the recent surge in global stock markets that has taken US indices to record highs, causing investors to hit the sell button.
The US’s Nasdaq, which is dominated by big tech stocks, fell around 3.5 per cent last week. The S&P 500 fell around 2.4 per cent. The rout in US tech stocks saw $2.3 trillion in value wiped off in just two days.
“After months of gains, and with an economic recovery that looks like it is stalling, investors will be asking, ‘is that it?’. Has the rally come to an end, and is the next big leg down upon us?” said Chris Beauchamp, chief market analyst at trading platform IG.
“It is not hard to find reasons to worry about the global economy,” he said. But he added that “not every pullback is the beginning of another major selloff”.
Investors will get a breather today, however, as US stock markets are closed today for the Labor Day public holiday, although Nasdaq futures fell a further one per cent.
FTSE 100 boosted by pound’s Brexit jitters
The FTSE 100 this morning recovered some of the ground it lost last week, when it slid around two per cent.
Its rise came despite the number of coronavirus cases in the UK jumping 50 per cent in a day to hit 3,000 on Sunday – the most since May.
The index was helped by the pound’s 0.9 per cent slump against the dollar to $1.315.
“Dominated by constituents with substantial overseas earnings, the index benefits from the bump these earnings get when the pound falls against other major currencies” said Russ Mould, investment director at AJ Bell.
It rise was driven by reports that the UK is set to override key parts of the withdrawal agreement it reached with the EU with new legislation.
“Brexit came roaring back into the picture over the weekend – specifically fears of a no-deal Brexit,” said Connor Campbell, market analyst at trading platform Spreadex.
He said the potential legislation, which would specifically focus on Northern Ireland’s trading arrangements, “is another example of the government actively chasing a no-deal Brexit”.
It has prompted concerns there could be retaliatory measures imposed between Dover and Calais, which has spooked investors.
“It is almost inevitable that the perceived probability of ‘no deal’ will escalate over the coming weeks,” Goldman Sachs analysts said in a note.
The drop in the pound cleared the way for the rebound in the FTSE, however. A cheaper pound makes the overseas earnings of the index’s firms worth more.
Soaring house prices boost property stocks
Housebuilders Barratt and Taylor Wimpey climbed 3.63 per cent and 2.8 per cent respectively, after data showed UK house prices hit a record high in August. Pent-up demand and the stamp duty holiday have boosted demand.
Prices rose 1.6 per cent month on month despite the UK being hit by the worst recession in modern history. That meant prices were 5.2 per cent higher in August than they were a year earlier, according to lender Halifax.
Scottish Mortgage Investment Trust was the biggest riser on the FTSE 100 in afternoon trading, climbing 5.65 per cent, while investment group M&G gained 5.18 per cent.
Primark owner Associated British Foods gained in today’s session after reporting a surge in fourth quarter sales as lockdown measures eased. Shares jumped on the open but eased back in afternoon trading to trade up 1.58 per cent.
“Primark needs a measure of normality to do well. Its low ticket business model is not a proposition that seems likely to translate well to the internet and the company has not gone down this route, not even considering it at the height of the coronavirus restrictions” said Mould.
“A return to nationwide lockdown or just more restrictive measures would significantly undermine the recent sales momentum”, he added.
Astrazeneca climbed 4.24 per cent after health secretary Matt Hancock said a vaccine, being developed by the pharmaceutical giant in collaboration with Oxford university, would “most likely” be available early next year.
Speaking on LBC, he said the government had already started production of the government’s initial order of 30m doses of the vaccine.
British Airways owner IAG was the FTSE’s biggest casualty, dropping 3.33 per cent as travel restrictions continue to dent demand.