One of the features of the pandemic in the financial world is how out of lockstep stock markets have been with the wider economic picture. In the depths of lockdown, we saw investors piling back into stocks – after a huge sell-off at the start of the crisis – seemingly oblivious to the carnage Covid was wreaking on the world’s major economies.
That trend would appear to be continuing today. As the nation digests the latest restrictions on everyday life, the FTSE 100 is forecast to open 57 points higher at 5,886 with markets in Germany and France also set to record decent gains. That’s despite Prime Minister Boris Johnson’s address last night, which warned Britons they face a six-month slog of working from home, and the knock on effects on businesses across the country, notably in city centres.
The mini-rally will be the second in two days, as the Footsie recovers some ground lost in a brutal sell-off on Monday when signs of the restrictions emerged.
The improving sentiment appears to be linked to events in the US, where markets enjoyed a strong day yesterday. Despite a sell-off in tech stocks earlier this month, the country’s biggest digital darlings remain in vogue and yesterday there were gains for Amazon, Alphabet, Microsoft, Apple and Facebook, as well as smaller tech stocks including Zoom, Adobe, Docusign and Pintrest.
CMC Markets analyst Michael Hewson said: “This strong performance on the part of US stocks is likely to translate into a similarly positive open for European stocks this morning, however there is rising concern that in light of surging infection rates across Europe, and the beginnings of a rise in hospitalisations, that the economic rebound from the lockdown lows is set to finish the year with a whimper.
“Yesterday’s actions by the UK government in imposing closing time restrictions on the hospitality sector, as well as table only service, along with the reinstatement of the working from home advice for at least six months, has raised the very real prospect of a whole host of businesses which may not survive until the end of the year.”
Oanda analyst Jeffrey Halley added: “Wall Street stocks snapped their multi-day losing streak overnight, with tech stocks lifted by Amazon, and the greater universe raised by an impressive rise of the Richmond Fed Manufacturing Index. Federal Reserve Chairman Powell, testifying on Capitol Hill helped things along by reiterating his easy policy mantra and calling for more stimulus.
“In all likelihood, after a multi-day losing streak, the FOMO crowd were itching to click the buy button again, with Mr Powell and the Richmond Fed giving them the right excuse on an otherwise quiet news day. Notably, other asset markets have not followed suit.”
In Europe, today brings the latest flash Purchasing Managers’ Index numbers for the UK, France and Germany. There have already been signs that the improvement in those countries’ economies post-lockdown is starting to run out of steam, and the UK Government and the Bank of England will be watching the reports closely to examine which direction Britain’s economy could head in.
Yesterday Bank of England governor Andrew Bailey appeared to pour cold water on the idea his establishment would soon opt for negative interest rates, saying it had merely scoped out how they would work in practice.