Update (17:30): The FTSE 100 has surged 2.6%, with shares in beaten-up travel stocks, banks and insurers soaring as data from the world’s two largest economies fuelled hopes of a global recovery from the economic damage caused by the coronavirus pandemic.
The UK blue-chip index closed 162 points, or 2.6%, higher at 6,382, as a rally gathered strength following a strong open for US markets.
The S&P 500 rose 1% on signs of stabilisation in the US employment market, after the ADP National Employment Report said private sector employers laid off 2.8m workers in May, well below the 9m that had been feared and April’s 19.6m figure.
‘There is a growing feeling that we are over the worst of the economic pain caused by the pandemic,’ said David Madden, analyst at CMC Markets UK. ‘Sentiment is bullish on Wall Street as dealers are optimistic about the reopening of the US economy.’
The US jobs surprise followed services data from China that smashed forecasts and readings for the UK and eurozone that were better than expected.
‘Everyone knows the lockdowns have been brutal in terms of the global economy, but there is a feeling that things are moving in the right direction,’ said Madden.
(10:37) China fuels recovery hopes
The FTSE 100 has rallied to a three-month high as hopes of a global recovery from the economic damage caused by the coronavirus pandemic were buoyed by strong data from China.
The UK blue-chip index jumped 80 points, or 1.3%, to 6,300, after China reported a strong rebound in its services sector in May. The country’s purchasing managers’ index (PMI) for the sector hit 55, its best reading since October 2020 and well ahead of both the 47.4 that had been expected and April’s 44.4 reading. Any reading above 50 indicates expansion.
British Gas owner Centrica (CNA), jumped to the top of the FTSE 100, up 7.1% at 41.3p, ahead of its relegation to the FTSE 250 in the upcoming reshuffle of the UK stock market indices based on yesterday’s closing prices.
Helal Miah, analyst at The Share Centre, said Centrica had been close to the relegation zone ‘for some time now’, facing a host of challenges including ‘the tough trading environment in the UK as new rival utility providers sweep away its customer base through offering lower bills’.
Travel stocks continued their rally from lows, including British Airways owner International Consolidated Airlines (IAG), which rose 5.6% to 264p per share and Easyjet (EZJ), another stock expected to fall out of the FTSE 100, which climbed 4.3% to 755p.
The pound continued to climb against the dollar, rising to $1.258, buoyed by reports of potential compromise in Brexit negotiations and a UK services PMI reading for May that was less bad than feared. Last month’s reading came in at 29, still indicating deep contraction but a markd improvement on April’s 13.4.
‘It might be awful, but it was less awful than April’s figure. And when things are this bad in the wider economy, improvement is all,’ said Ulas Akincilar, head of trading at Infinox.
The ‘mid-cap’ FTSE 250 outpaced the blue-chip index, jumping 1.9% to 17,767. It was led by defence contractor Chemring Group (CHG) which surged 22.7%, or 48p, to 262p after raising its dividend having won new US contracts.
The group bucked the corporate slump with a rise in pre-tax profit in the six months to April. It reported a 37% jump in revenues to £191m and increased its interim dividend by 8% to 1.3p per share.
Peel Hunt analyst Henry Carver said the dividend raise was ‘an encouraging signal of confidence, adding the group had made ‘considerable progress’ in ‘tidying up’ and refocusing on higher quality revenue streams.
Retail property companies continued to rally from their lows. Town Centre Securities (TOWN) gained 6.5% or 7p to 115p after confirming it would pay a previously announced 3.25p per share interim dividend, though it warned its final dividend was expected to be substantially lower than in previous years.
Royalties income fund Hipgnosis Songs (SONG) jumped 8% or 8.5p to 115p after reporting a 14% increase in first quarter operative net asset value caused by growth in online streaming, and said its targeted 5p of dividends would be covered by earnings.