Hopes of swift economic rebound give way as country heads for tighter restriction.
The FTSE 100 rose strongly on the first trading day of 2021, although optimism over the newly approved Oxford coronavirus vaccine was tempered by the prospect of tougher lockdown restrictions.
The index of Britain’s biggest listed companies gained by more than 100 points, or about 1.7%, on Monday, to reach 6,571 after the vaccine developed by the University of Oxford and AstraZeneca was administered for the first time since its approval by the British medicines regulator last week.
The index had leapt by almost 3% earlier in the day, but lost ground in the afternoon as England headed for tightened Covid restrictions to counter a resurgence in the pandemic. Wall Street also slipped, with the Dow Jones Industrial Average falling by more than 600 points in early trading in New York before Senate runoff elections in Georgia on Tuesday.
The pound fell by almost 1% against the dollar on the global currency markets to trade at about $1.35. Weaker sterling can boost the FTSE 100 because many companies in the index generate the bulk of their earnings overseas.
Analysts said a lack of widespread disruption for cross-border trade after the end of the Brexit transition had also buoyed markets. Truck movements are, however, below normal for the time of year, after firms rushed to move goods before the transition expired and a last-minute deal was agreed between the UK and the EU before the 31 December deadline.
Tougher government restrictions and the rapid growth in coronavirus infections are however expected to hit the economy at the start of the year. Despite the gains for the FTSE 100 as a whole, shares in banks and housebuilders – which are more sensitive to the domestic hit from tougher Covid restrictions than more international firms in the index – fell sharply.
Hinesh Patel, a portfolio manager at the investment firm Quilter Investors, said the performance of the FTSE 100 was a reflection of investors desperately hoping that the vaccine could be rolled out quickly. “Otherwise they may find themselves prematurely embracing the reopening of the economy.”
However, he added: “With Brexit risk appearing as if it is off the table and the start of the Oxford University/AstraZeneca vaccine rollout, many investors are taking the opportunity to catch up on some of the potential opportunities they may have missed prior to Christmas.”
