LONDON MARKET CLOSE: Stocks Leap On US Fed Remarks, Vaccine Optimism

(Alliance News) - Stocks surged on Monday due to the combination of supportive comments from US Federal Reserve Chair Jerome Powell and encouraging early results from US biotech firm Moderna's coronavirus vaccine.

The FTSE 100 closed up 248.82 points, or 4.3%, at 6,048.59. The FTSE 250 closed up 569.26 points, or 3.6%, at 16,230.03, and the AIM All-Share closed up 16.93 points, or 2.1%, at 825.73.

The Cboe UK 100 ended up 4.3% at 10,224.63 while the Cboe UK 250 closed up 3.6% at 13,762.53, and the Cboe Small Companies ended up 0.7% at 8,749.72.

In European equities on Monday, the CAC 40 in Paris rallied 5.2%, while the DAX 30 in Frankfurt surged 5.7%.

"Powell's comments about doing more if needed to support the US economy have provided the fuel for yet another rally in equity markets," said Chris Beauchamp at IG.

"While the market bounce might seem odd as news continues to pile in of more job losses in major economies, markets are once again looking past the expected downturn towards Q3 and Q4; this is supported by the lack of any real uptick in virus infections so far in those countries that have begun more expansive reopening programmes, which perhaps means the post coronavirus world will not be quite as different to the pre-virus world as many thought," Beauchamp added.

Federal Reserve Chair Jerome Powell over the weekend said the US is facing a severe economic downturn amid the global pandemic, but will not suffer another Great Depression and will see a recovery begin later this year.

The US on Sunday recorded 820 new coronavirus fatalities in the previous 24 hours, with the country's total death count nearing 90,000, a Johns Hopkins University tracker reported.

The world's top economy was strong before the Covid-19 outbreak hit, like a natural disaster, causing nationwide business shutdowns, Powell said. And the banking system had been rebuilt stronger since the global financial crisis.

For the April-June period, the economic data "will be very, very bad. There'll be a big decline in economic activity, big increase in unemployment," Powell told the CBS programme "60 Minutes."

But "there're some very fundamental differences" between the current crisis and the Great Depression of the last century, he said.

The US economy could "easily" collapse by 20% to 30% this quarter, and unemployment could peak at 20% to 25%, but, "it should be a much shorter downturn than you would associate with the 1930s." The other key difference is, rather than raising interest rates, the Fed slashed lending rates to zero and is prepared to come up with new ways to support growth, Powell said.

His comments came as countries across Europe and the US further eased their Covid-19 lockdowns.

With infection and death rates falling in some of the worst-hit countries, governments are slowly allowing businesses to re-open and people to venture out again, with top-tier football returning in Germany – albeit in empty stadiums.

Once the worst-hit country in the world, Italy on Monday took its latest step in a cautious, gradual return to normality, allowing businesses and churches to reopen after a two-month lockdown. Spain is also set to further ease its lockdown measures.

California's governor said the state was 75% up and running, New York is also lifting the shutters in some regions, and Apple said almost 100 of its stores were now open.

France and Germany on Monday proposed a EUR500 billion fund to finance the relaunch of the EU's economy, which is facing the biggest post-war crisis because of the coronavirus pandemic.

Financed by "borrowing from the market in the name of the EU", the fund will flow to the "worst hit sectors and regions" in the 27-member bloc.

Countries benefiting from the financing would not have to repay the sum, said France's President Emmanuel Macron.

"We are convinced that it is not only fair but also necessary to now make available the funds...that we will then gradually repay through several future European budgets," said German Chancellor Angela Merkel.

The borrowing marks a major shift by Germany, which has until now rebuffed Spain and Italy's calls for so-called "coronabonds".

European Commission chief Ursula von der Leyen hailed the plan.

The pound was quoted at USD1.2221 at the London equities close Monday, higher compared to USD1.2125 at the close on Friday.

The euro stood at USD1.0892 at the European equities close Monday, up against USD1.0818 at the same time on Friday. Against the yen, the dollar was trading at JPY107.39 compared to JPY107.23 late Friday.

Stocks in New York were steaming ahead at the London equities close, with the Dow Jones up 3.0%, the S&P 500 index up 2.6%, and the Nasdaq Composite up 1.9%.

Also boosting sentiment was news that US biotech firm Moderna reported "positive interim" results in the first clinical tests of its vaccine against the new coronavirus performed on a small number of volunteers.

The vaccine, mRNA-1273, appeared to produce an immune response in eight people who received it, of the same magnitude as that observed in people convalescing from the virus, the company said.

The complete results of the phase 1 test, the first in the development of a vaccine and which in this case involved 45 participants, were not yet known.

Phase 2 tests, with a larger number of subjects, should begin soon, and according to Moderna. The phase 3 trial, the last and most important to validate the efficacy of a vaccine, should begin in July.

Gold had surged in the morning on Powell's comments, but fell back as the afternoon progressed.

Gold was quoted at USD1,729.70 an ounce at the London equities close Monday, having traded above the USD1,764 mark earlier in the session. The precious metal was quoted at USD1,743.84 at the close on Friday.

Edward Moya at Oanda commented: "Massive stimulus measures have sent gold prices roaring to a 7-year high, but gold is not immune to a wide-range market rally. Vaccine hopes and reopening optimism burst gold's hopes for an immediate run to record high territory, but today's selloff does not change the medium-term outlook for higher prices."

Even though the price of gold fell back, Fresnillo still ended the session 9.1% higher.

The price of oil surged on Monday as markets looked towards the lifting of lockdowns. Brent oil was quoted at USD35.48 a barrel at the London equities close Monday from USD31.27 late Friday.

This helped BP shares climb 8.2% and Royal Dutch Shell 'A' and 'B' shares rally 8.3% and 8.2% respectively.

Also ending among the top blue-chip performers were airlines, with International Consolidated Airlines up 11% and easyJet up 10% on the back of annual results from Ryanair.

Ryanair's revenue in the financial year that ended March 31 was 10% higher annually at EUR8.49 billion from EUR7.70 billion. Pretax profit, however, was down by 29% year-on-year to EUR670.3 million from EUR948.1 million.

Weighing on Ryanair's profit was a EUR407.2 million charge for fuel hedge ineffectiveness. Without taking that accounting hit, pretax profit would have come in 14% higher at EUR1.08 billion. The bulk of the ineffectiveness costs were in relation to the Covid-19 pandemic.

Nonetheless, profit after tax before exceptional items came in at EUR1.00 billion, at the top end of guidance.

The airline described the year ahead as "difficult". Ryanair expects to operate fewer than 1% of its scheduled flight programme in April, May and June - its first quarter. It expects a EUR200 million loss in the first quarter, with a reduced loss in the second.

Ryanair shares closed up 16%.

In the UK corporate calendar on Tuesday, there are full-year results from support services firm DCC and emergency home repairs firm Homeserve while interim results are released by tobacco firm Imperial Brands and food-to-go maker Greencore.

The economic calendar has Japanese industrial production at 0530 BST and UK unemployment at 0700 BST followed by eurozone construction output at 1000 BST with the German ZEW survey due at the same time. US Fed Chair Powell will testify before Congress at 1500 BST.

By Lucy Heming; lucyheming@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.