Thursday 7 May 2020 3:03 pm

FTSE 100 and US stocks rise despite more dire economic warnings

US stocks have joined the FTSE 100 in positive territory as investors bet on a relatively speedy economic recovery from coronavirus despite yet more dire economic predictions.

London’s blue-chip FTSE 100 index was up 1.4 per cent at 5,933 points in afternoon trading. This was despite the Bank of England warning of the worst slump in 300 years.

Read more: Bank of England says economy could shrink 14 per cent but rebound sharply

US stocks rose when trading opened on Wall Street. Investors shrugged off the news that more than 33m Americans have made jobless claims in around seven weeks. The Dow Jones, S&P 500 and Nasdaq were all 1.4 per cent higher in early trading.

Equities also rose in Europe, with the continent-wide Stoxx 600 one per cent higher. Germany’s Dax rose 1.2 per cent and France’s Cac index climbed 1.3 per cent.

The rise in stocks came despite the Bank of England today warning that coronavirus could cause the UK economy to shrink 14 per cent in 2020. This would be the worst economic slump since the early 1700s.

Connor Campbell, financial analyst at Spreadex, said the projections are “rather terrifying”. They include a nine per cent unemployment rate, up from under four per cent at the start of the year.

However, investors were cheered by the Bank’s prediction of a strong recovery in 2021 after the pandemic has passed.

US stocks rise as investors digest earnings

US equities climbed higher despite the number of new claimants for unemployment insurance rising by 3.2m. This took the total to more than 33m since lockdowns began.

However, a raft of upbeat corporate earnings reports helped US stocks. Media conglomerate Viacom CBS soared after reporting a jump in streaming subscribers.

Shares in biotechnology firm Moderna also jumped after saying progress on its experimental coronavirus drug was advancing.

The rise in US equities continued a recent trend. Investors have for weeks shrugged off terrible economic data and looked towards a hoped-for rebound in 2021.

The S&P 500 is now only around 10 per cent off for 2020, having risen roughly nine per cent over the last month.

Bank’s 2021 recovery hopes keep stocks green

The FTSE 100 was buoyed by the Bank’s projection of a 15 per cent recovery in 2021, analysts said. Bailey said government support measures will prevent major economic “scarring”.

On top of this, sentiment was supported by Bailey’s suggestion that said more stimulus bond-buying is very much on the table.

However Neil Wilson, chief market analyst at Markets.com, said the Bank’s recovery projections are “optimistic” considering the scale of the coronavirus pandemic’s fallout.

“Let’s hope the plausible scenario is right,” Wilson said. “I have a nasty feeling it won’t be. There will be deep and lasting changes to the way people shop, work, travel and simply move around.”

Investors have also found heart in reports that Prime Minister Boris Johnson will reveal a three-stage easing of the lockdown next week.

Read more: UK draws up three-stage plan for easing coronavirus lockdown

That could involve outdoor workplaces and small shops reopening first. Then larger shopping centres and offices could reopen. Last of all would be restaurants, pubs, gyms and hotels, it is reported. They are considered the most risky places to go.

Despite gaining in the morning, the pound was trading 0.2 per cent lower against the dollar at $1.232.

Chinese exports boost FTSE 100 stocks

The FTSE 100 also benefited from a stronger than expected 3.5 per cent growth in Chinese exports in April.

That helped take the sting out of the tail of the Bank of England’s latest economic scenario, analysts said, in signs of a robust economic recovery.

“Better-than-expected data from China took the markets by surprise,” Russ Mould, investment director at AJ Bell, said. “[It] helped to stabilise earlier declines in parts of Asia and also gave support to the FTSE 100.”

He said China’s data is “leading investors to speculate that the country could quickly recover from the pandemic”.

Oil prices rose again today, with investors betting on recovering demand. Brent crude was up six per cent to $31.40 per barrel. US WTI crude was up nine per cent at $26.10 per barrel.

FTSE 100 winners and losers

“Mining and oil shares rallied on the FTSE as investors bet that commodities demand could soon improve as China gets back to work,” Mould added.

Shell was up three per cent while BP had risen one per cent. Miner Anglo American had jumped almost six per cent. And BHP was up four per cent.

Read more: BT scraps dividend as Covid-19 and full-fibre rollout hit profit

BT suffered badly as it revealed the extent of the coronavirus fallout on its bottom line. Shares sank over seven per cent after boss Philip Jansen scrapped the telecom giant’s dividend.

Insurer RSA posted the strongest growth on the FTSE 100 early on, and was last up seven per cent after profit grew by double digits.

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