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FTSE 100 rallies on fresh wave of optimism as UK set to outpace growth forecasts

<p>US bond markets eased off and stocks lifed in expectationg of Biden’s $1.9tn bailout</p> (AFP via Getty Images)

US bond markets eased off and stocks lifed in expectationg of Biden’s $1.9tn bailout

(AFP via Getty Images)

Calmer bond markets and a dose of economic optimism worked wonders today as investors toasted a rapid turnaround in fortunes for global markets.

Friday’s frenzied inflation-driven sell-off was put to one side after the FTSE 100 index rallied 1.7% higher, driven by resurgent housebuilding, mining and technology stocks.

The rise came as the yield on 10-year US Treasury bonds eased to 1.4%, helped by reassuring comments from central bankers after last week’s surge to a one-year high.

London’s quick-fire start to the month was given momentum by hopes that the Budget will include better-than-expected forecasts on the recovery of the UK economy, raising the prospect of fewer tax rises than first feared.

The projections by the Office for Budget Responsibility are reportedly set to show the fastest growth rate in almost 50 years, with output back to the 2019 peak early next year.

Hopes for a stronger-than-expected summer of activity received a further boost by robust PMI figures in the UK manufacturing sector.

The FTSE 100 index surged 111.10 points to 6,594.3, with British Airways owner IAG among significant risers after improving 10.35p to 202.3p. Tesla investor Scottish Mortgage Investment Trust also recouped some of last week’s sharp losses to climb 53p to 1,188p.

Shares in distribution group Bunzl were higher after the blue-chip reported its 28th year in a row of dividends growth with a full-year payment 7% higher at 38.3p a share.

Annual profits jumped 22.6% to £555.7 million on revenues of just over £10 billion as the company benefited from one-off demand for PPE deliveries of gloves, masks and sanitisers. This demand helped to offset the impact of restrictions elsewhere, particularly affecting its businesses supplying workplace items to foodservice and retail.

Shares were initially 3% lower on uncertainty over how the unwinding of Covid-19 contracts will hit Bunzl’s top-line, but they later rallied to stand 24p higher at 2,261p.

The economic recovery hopes were best seen in the domestic-focused FTSE 250 index, which jumped almost 2% or 392.15 points to 21,300.23.

Airport caterer SSP rose 18.4p to 362.8p, while pubs chain JD Wetherspoon added 55p to 1,291p for a gain of 4%.

FTSE Morning preview

REUTERS
REUTERS

by Jim ArmitageThe FTSE 100 surged today amid reports that Rishi Sunak will upgrade forecasts on the UK’s economic recovery from Covid at this week’s Budget.

The FTSE jumped 107.1 points to 6590.54 in early trading with big jumps from housebuilders Persimmon, Barratt and Taylor Wimpey on hopes the Budget will see an extension to the stamp duty holiday.

The mood of optimism starting the week comes with optimism that the successful progress of the vaccine rollout in the UK will trigger a faster than expected rebound in the recovery, requiring, according to the Financial Times, fewer tax rises than feared.

The newspaper reported that the independent Budget for Fiscal Responsibility would predict a faster recovery than previously expected, albeit that would be largely because the decline was also sharper than it forecast before.

The OBR’s previous forecast was made before the sharp increase in Covid cases in December from the Kent mutation of the virus which necessitated the tough lockdowns.

However, it was not just in the UK that market optimism was abounding today. The FTSE’s expected rise was mainly being attributed to strong gains in Asia and Australia as bond markets stabilised after seeing their yields swing wildly higher last week.

Japanese shares were up nearly 2% this morning, with Australia, China and Hong Kong stock indices all up around 1%.

Aussie 10 year bond yields fell 0.27 percentage points to 1.628% reflecting a calmer mood on global interest rate expectations.

For weeks now, investors have been concerned a global recovery from the Covid crisis will spur inflation, meaning central banks will have to increase interest rates.

US Treasury bond yields held firm this morning after falling from 12 month highs on Friday.

The S&P 100 in the US was expected to rise around 0.8% when trading opens this afternoon, according to the futures markets.

In the UK, the market’s gains today may be affected by moves in commodities prices which have seen massive increases in recent weeks, particularly in metals.

Copper hit 10 year highs last week, having doubled in the past year, spurring a rebound in stocks such as Rio Tinto. Investors are betting the recovery in the global economy will be a green one, requiring vast amounts of copper wiring for electric cars, windfarms and the like.

That prediction has triggered values of rare earth metals needed in power generation and other green energy engineering.

However, copper fell sharply late last week along with the sudden pullback in US bond yields as price inflation expectations came back. Oil behaved in the same way, so this week is likely to see that battle between bears and bulls continue to play out and impact on the UK’s commodities-heavy stock market.

CMC Markets pointed out that a host of Federal Reserve central bankers will be speaking this week and the subject of “reflation” and bond yields will inevitably be discussed. Central bankers have all been keen to downplay talk of interest rate rises but investors will be testing their resolve, CMC said.

Today sees manufacturing data in Europe for Spain, Italy, France and Germany covering February. The numbers are likely to show some resilience with scores of 52.1, 57, 55 and 60.6 on the index in which anything above 50 marks growth.

That could trigger another rise in European bond yields, further spooking markets, although growth is likely to be held back on the continent by the poor rollout of Covid vaccines there.

The same survey in the UK is expected to show a score of 54.9.

Mortgage approvals in Britain for January are expected to be shown close to 100,000, CMC said, after rising to 103,000 in December. The chancellor is expected to announce an extension to the stamp duty holiday which has been artificially stimulating demand in the housing market and propping up prices.