London shares rally as US stimulus and Brexit pact brighten sentiment

London shares rally as US stimulus and Brexit pact brighten sentiment

UK stocks rallied on Tuesday as investors got their first chance to react to last week’s Brexit trade pact and the $900bn American stimulus bill signed into law by President Trump at the weekend.

London’s FTSE 100 closed 1.6 per cent higher on the first trading day of the week following Monday’s bank holiday.

European and Wall Street stocks continued their rise on Tuesday, having both begun the week on a high note, with Germany’s Dax and the US S&P 500 hitting new record highs as investors cheered the injection of hundreds of billions of dollars into America’s pandemic-stricken economy.

“The unwrapping of the Brexit deal and a stimulus package for the US economy have propelled shares higher in Europe, with another boost of optimism, now foundations are being laid for a sustained recovery,” said Susannah Streeter, markets analyst at Hargreaves Lansdown.

That optimistic outlook continued into Tuesday after the US House of Representatives passed a measure that would increase direct payouts to Americans from $600 a person to $2,000. The passage of the bill, which is supported by Mr Trump, throws the spotlight on the Republican-controlled Senate that has thus far resisted the increase.

By midday in New York, the S&P 500 had inched up 0.2 per cent, while the tech-heavy Nasdaq Composite slipped 0.1 per cent.

Marcus Widén, economist at SEB, said the prospect of a larger stimulus programme was a factor that had helped to boost “confidence in the US economy and the risk appetite for 2021”.

Despite the late-year rally, UK markets have lagged significantly behind regional peers in 2020. The FTSE 100 has lost around 12 per cent this year, on a total return basis that includes dividends, FactSet data show. In the comparison, Germany’s Dax has returned 4 per cent in local currency terms, while the French CAC 40 has lost 5 per cent. Wall Street’s S&P 500 has delivered returns of nearly 18 per cent.

In currencies, sterling ticked back up to around $1.35 on Tuesday after falling in the previous session. It failed to hit its highs for the year above $1.36, with investors indicating that the UK-EU trade deal was largely priced in and remaining cautious given the deal did not cover big industries such as financial services.

European markets continued their rise on Tuesday, with stock benchmark the Stoxx 600 gaining 0.8 per cent and France’s CAC 40 advancing 0.4 per cent. However, Germany’s Dax, which hit a record high on Monday, lost 0.2 per cent.

Markets in Asia also climbed, with MSCI’s gauge of equity markets in the region rising 1 per cent. Japan’s benchmark Topix added 1.7 per cent, while Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 rose 1 per cent and 0.5 per cent, respectively.

In Hong Kong, shares in Chinese technology groups rebounded following concerns of a regulatory crackdown on the sector. Alibaba, the ecommerce group, jumped nearly 6 per cent after falling 8 per cent a day earlier in the wake of a rare public rebuke by Chinese authorities targeting Ant Group, Alibaba’s payments-focused sister company, for alleged regulatory failings.

The moves by Beijing indicate a “turning tide in tech regulation, which we believe will be the industry’s biggest challenge in 2021”, added Mr Pérez Ruiz.

In commodities, oil continued to push higher on hopes that increased stimulus spending would boost the US economic recovery. Brent crude, the international benchmark, added 0.9 per cent to $51.32 a barrel. West Texas Intermediate, the US marker, was gained 1.1 per cent, to $48.14 a barrel.

The dollar, as measured against a basket of America’s trading peers, lost 0.4 per cent.

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