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FTSE extends gains as US firms re-hire at record pace

2 July 2020

(Update) A record rebound in US employment data pushes FTSE 100 1.5% higher as hopes of a swift economy recovery again beat fears of a second wave of coronavirus infections.

(Update) A record rebound in US employment data pushed the FTSE 100 1.5% higher as hopes of a swift economy recovery again beat fears of a second wave of coronavirus infections and further lockdowns.

The UK blue chip index extended its early gains - fuelled by progress at US drugs giant Pfizer in finding a vaccine for Covid-19 - rising 93 points to 6,250 this afternoon.

After a flat performance yesterday, this builds on a second quarter gain of around 15% for the UK stock market, which was comparatively weak against the 24% advance in global markets in sterling terms.

On Wall Street US equity indices advanced again, with the S&P 500 up 1.5% to 3,161 and the technology Nasdaq index up 1.3% to 19,289 in early trading this afternoon after nonfarm payrolls increased by 4.8m jobs in June. 

This is the biggest rise since records began in 1939, and the second month the data has beat forecasts. The figures were released a day earlier than usual because of tomorrow’s Independence Day holiday.

The good US jobs report confirms yesterday’s ADP figures showing private employers created 2.4m jobs in June and the figure for May was revised to show a 3m gain in positions against a previously estimated 2.8m loss. 

The news comes as new cases of coronavirus continue to grow, with the US seeing a daily increase of around 50,000, and the global number of cases standing at 10.5 million, prompting countries to reimpose restrictions on citizens.

Richard Carter, head of fixed interest research at Quilter Cheviot, said: ‘This chimes with recent data that suggests we are seeing a V-shaped recovery taking place as the country emerges from lockdown. 

‘However, investors are likely to remain cautious about the outlook because the US authorities clearly do not have a grip on the virus with cases accelerating alarmingly in some states while a vaccine is apparently still some way off.’

Neil Birrell, Chief Investment Officer at Premier Miton, said: ‘The US jobs data came in much better than expected. Although, it is not as good as face value given incorrect classifications. But, no matter, risk assets will continue to benefit from the significantly improving economic trends as the US population gets back to work and spending.’

Seema Shah, chief strategist at Principal Global Investors, cautioned: ‘The US government cannot claim victory just yet. High-frequency data suggests that the labour market strength had started to wane later in the month, perhaps as households and businesses grew increasingly cautious about the rise in infection rates. 

‘Indeed, now, with the closing having been reversed or paused across 40% of the US, July’s job report may paint a much weaker story,’ she added.

Tesla delivers

Tesla (TSLA.O) continued its dizzying run, leaping 9% to a new high after the electric car maker beat estimates for second-quarter vehicle deliveries on Thursday, with 90,650 vehicles delivered during the quarter, significantly above estimates of 74,130 vehicles, according to Refinitiv data. 

‘While our main factory in Fremont was shut down for much of the quarter, we have successfully ramped production back to prior levels,’ the company said in a statement.

The surprise news came a day after Tesla became the highest-valued automaker, with a market capitalisation of $207.6bn, surpassing former leader Toyota Motors Corp following a stunning 168% share price rise this year.

Primark profits

In London started the day up 59 points, or 0.9%, at 6,217 after Pfizer and its German partner BioNTech (BNTX.O) reported a trial of a Covid-19 vaccine on 45 people that showed those who were administered with a low or medium dose had immune responses.

‘Investors largely are shrugging off higher cases though as Pfizer reported positive results from a vaccine trial,’ said Neil Wilson, analyst at Markets.com.

‘But we have been here before – it’s too early to get too excited – but a working vaccine is the holy grail as it would allow real normality to return to the economy.’

Cyclical and financial stocks geared to a recovery extended their gains. British Airways owner International Consolidated Airlines (IAG) led the FTSE higher, up 7% or 15.5p to 234.7p.

Associated British Foods (ABF) jumped 5.8% or 113.5p to £20.78 after reporting trading at its Primark stores since they reopened on 15 June had been ‘encouraging’ despite a £582m slump in sales between 1 March and 20 June.

Hargreaves Lansdown analyst Nicholas Hyett said Primark sales were looking ‘very promising’ and its low price points could ‘provide some insulation against a major economic downturn’.

Two trusts move to wind up

The ‘mid cap’ FTSE 250 kept pace, up 1.5% or 252 points to 17,442 with Law Debenture (LWDB ) leading the charge of UK investment trusts, up 5.2% or 27p to 549p.

Smaller companies generally lagged the charge with the FTSE Small Cap advancing 1% or 48 points to 5,054.

Global trust Majedie Investments (MAJE ), up 5% or 9p to 191p, was having a strong day after a period of weakness.

Gabelli Value Plus (GVP ) gained 2p to 115p after the US equities trust inched towards a wind-up and return of investor capital. It reported another disappointing year for performance with the board and Investec Wealth, its largest shareholder, recommending shareholders vote against its continuation.

By contrast Aberdeen Frontier Markets (AFMC ) eased 0.5% to 40.1p after the £29m emerging markets minnow also proposed to wind up.

 

Investment company news brought to you by Citywire Financial Publishers Limited.

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