The FTSE 100 jumped as it continued to recover from Monday’s rout, while US stocks were mixed as investors weighed up the chances of fresh stimulus.
London’s blue-chip index was up 1.7 per cent at 5,926 points, edging it closer to the 6,000 threshold. The FTSE 250 was up 1.05 per cent.
The FTSE 100 crashed more than three per cent on Monday, as investors anticipated new restrictions in response to rising coronavirus cases.
However, it recovered around one per cent yesterday as details of the UK’s new rules became clear.
Prime Minister Boris Johnson announced that pubs and restaurants would have to start closing from 10pm. He banned indoor sports and said employees should work from home if possible.
The FTSE’s rebound came even as survey data showed economic growth had cooled in September.
The IHS Markit Flash PMI reading showed a reading of 55.7 this month, falling from 59.1 in August. Everything above 50 is considered growth.
It came in below forecasts with the slowdown particularly acute in services as activity rose at its weakest rate in three months.
Optimism also returned to Europe in morning trading. Germany’s Dax was up 1.6 per cent and France’s CAC 40 was 1.8 per cent higher. The continent-wide Stoxx 600 was 1.4 per cent higher.
FTSE 100 sees broad-based rally
“Stocks on the FTSE 100 have reacted surprisingly well to Boris Johnson’s increased restrictions to stem the spread of coronavirus,” said said Fiona Cincotta, market analyst at trading platform City Index.
“The measures weren’t as drastic as some had feared which has offered some support to stocks, particularly in the retail and hospitality sector.”
It was a broad-based rally. Airlines, banks, supermarkets, housebuilders, hospitality and energy stocks all showed gains. It came despite survey data showing the UK economy lost momentum in September.
Jet engine-maker Rolls Royce was the biggest riser, climbing 6.6 per cent. It was battered on Monday, so its rise is a sign that investors think they overreacted.
Housebuilders Barratt and Taylor Wimpey also did well, rising around five per cent. Domestic retailer JD Sports was not far behind with a rise of 4.6 per cent.
David Madden, market analyst at trading platform CMC Markets, said: “The rally in US stocks last night has lifted the mood in this part of the world.” He added: “European equities have been taking their cues from the US a lot recently.”
Madden said that in the UK “stocks like Restaurant Group and Marstons are higher again as the new restrictions are not as tough as some people initially predicted”.
Stimulus hopes help to drive US stocks
The FTSE’s optimism was not mirrored across the Atlantic, as US stocks were subdued as investors considered the chances of further fiscal stimulus.
On Tuesday Federal Reserve chair Jerome Powell told a congressional panel that the economy had shown “marked improvement” but the path ahead remains uncertain.
Until then officials “remained committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy”, he continued.
The Dow Jones inched up 0.2 per cent, while the S&P 500 opened flat before dropping 0.3 per cent despite a record open for Nike.
The world’s largest athletic shoe marker surged more than 12 per cent in premarket trading, after it reported an 82 per cent rise in online sales. Shares in Adidas and Puma were also lifted by the results.
“The only upside as far as markets are concerned is that more stimulus won’t be far behind”, said Craig Erlam, senior market analyst at Oanda Europe.
“This was certainly the message… from Powell and Treasury Secretary Steve Mnuchin, although the fiscal side of the equation is proving problematic and may not come until after the election. A lot of damage can occur in the interim.”
September’s flash reading for IHS Markit’s PMI came in slightly below expectations at 53.5 which did little for investors’ confidence.
The tech-heavy Nasdaq dropped 0.02 per cent as Tesla crashed more than six per cent.
Neil Wilson, market analyst at Markets.com, said Tesla’s “new battery tech would deliver 16 per cent more range and six times more power, but the company said production in volume is three years away”.