The FTSE 100 jumped today as US stimulus hopes offset bleak new data that showed a surge in UK job losses during the coronavirus crisis.
The blue-chip index was up 2.42 per cent at 6,197 points at midday, before closing up 1.71 per cent at 6,154 in a bullish day for western markets.
The gains come after the FTSE closed up 0.31 per cent on Monday as traders pinned their hopes on positive signs of economic recovery.
This optimism prevailed despite new figures that showed 730,000 Brits have lost their jobs since March, marking the largest quarterly decrease in employment since 2009.
Since June, a further 114,000 people have become unemployed, the Office for National Statistics added.
The unemployment figures come ahead of the latest economic growth data due tomorrow, which is expected to show that UK GDP crashed 21 per cent in the second quarter.
Instead traders appear to be taking their cue from more upbeat signs of economic recovery.
Last week Bank of England governor Andrew Bailey said the economic fallout from the Covid-19 crisis may not be as bad as previously feared.
Meanwhile markets were buoyed by improved economic data from both the US and China last week.
But the rally has largely been driven by rising hopes that US lawmakers can agree terms on a Covid-19 aid plan.
“It might be that US political leaders are finally managing to make progress towards an actual deal, after President Trump’s move to steal the limelight with an executive order over the weekend,” said Chris Beauchamp, chief market analyst at IG.
“The possibility of more tax cuts has also lifted sentiment, resulting in substantial gains for European markets and a rise for US futures. With earnings season now mostly done and dusted the focus shifts back to the prospect of more US stimulus and the geopolitical picture, which sees the US and China at loggerheads once more.”
Russ Mould, investment director at AJ Bell, agreed that “hopes of bi-partisan agreement on a US fiscal stimulus package helped stoke the fires of a market rally”.
“The index took its cue from this news and strong trading in the US overnight rather than backward-looking UK jobs data which, to the surprise of precisely no-one revealed a pretty bad picture through lockdown.”
But he added: “The markets may well be keeping its powder dry ahead of the end of the furlough scheme in October, when the full scale of the unemployment crisis may be more apparent.”
Positive sentiment was rife across Europe this morning, with Germany’s Dax up 2.05 per cent at 12,948 and the French Cac 40 closing 2.41 per cent higher at 5,027.
US stocks push higher
US stocks built on last night’s gains as markets opened in New York this afternoon.
The S&P 500 and Dow Jones rose 0.35 per cent and 1.20 per cent respectively. However, the Nasdaq slipped 0.45 per cent.
The optimism builds on a bullish week of trading as Wall Street, with the S&P 500 on track to reach record highs.
Traders have been spurred on both by talks over a US stimulus package and a potential capital gains tax.
Confidence has also increased as the result of a better-than-expected earnings season, which increased hopes of recovery from the coronavirus crisis.
Connor Campbell, financial analyst at Spreadex, said US President Donald Trump had “gone into white knight mode” by pointing to a Covid-19 relief fund and capital gains tax.
“Add onto that the ongoing negotiations regarding a second stimulus package from Congress, and investors were able to look beyond the US-China tensions that had caused a fair few jitters in the past week or so.”
Wall Street also received a boost following reports that Russia has approved the world’s first Covid-19 vaccine.
However, concerns have been raised about whether the vaccine — dubbed Sputnik-V — has undergone sufficient testing.
“While it is easy to get carried away with the prospect of a vaccine, the speed at which it has been completed is a little concerning, given that there is little data on any possible long term side effects,” said Michael Hewson at CMC Markets.
Campbell added that the day’s trading was “one of those sessions that seems to fly in the face of the most recent string of headlines”.
Tensions have been mounting between the US and China in recent weeks after Trump issued bans on Chinese-owned tech firms Tiktok and Wechat.
China last night imposed sanctions on several senior Republican senators in retaliation against US sanctions on 11 China and Hong Kong officials, including Carrie Lam.
However, traders appeared unperturbed, while Asia Pacific stocks also ticked up in this morning’s session.
FTSE 100 risers
British Airways owner IAG was flying high in today’s session, with shares up 6.74 per cent.
It came after Russia announced it had approved the world’s first coronavirus vaccine for use.
The vaccine spurred on hopes that an effective vaccine can be found to bring the coronavirus crisis to an end.
Travel firms were most buoyed by the reports, with Norwegian Air and Carnival both pushing higher.
Intercontinental Hotels Group was also among the top FTSE 100 risers this morning as shares gained 6.6 per cent.
The Buckinghamshire-based hotels giant reported a hefty hit to its performance in the first half as lockdown measures decimated bookings.
Revenue dropped 51 per cent to $488m (£373m), while underlying operating profit slumped 83 per cent to $70m.
Despite this, investors showed hopes of a recovery for the hotel company as travel begins to pick up after the lockdown.
“Lockdowns have hit hoteliers hard, but as IHG only owns 26 of its portfolio of nearly 6,000 hotels, it’s fared better many,” said Emilie Stevens, equity analyst at Hargreaves Lansdown.
“Despite the group’s global occupancy dropping to 25 per cent in the second quarter and revenue per room falling by half in the first half, the group remained profitable. While it’s offered support to franchisees over the crisis, not being on the hook for hotel running costs has gone a long way.”