London’s blue chip FTSE 100 index rose 1.9 percent by 7.11am and the FTSE 250 soared 2.3 percent after Boris Johnson’s Government expanded its overdraft with the Bank of England to ensure it has sufficient cash to cope with disruption caused by coronavirus. The central bank will now directly finance the extra spending the Government needs on a temporary basis. The news puts the blue-chip FTSE 100 on foot to record its best week since July 2016.
UK markets rallied following the news and BP and Royal Dutch Shell stocks gained more than 3 percent ahead of an OPEC+ meeting where the world’s largest oil producers are expected to agree to cut production.
A jump in oil prices boosted producer-heavy UK stock markets on as hopes grew that OPEC countries and Russia would agree to output cuts this week amid the coronavirus pandemic.
Meanwhile, domestically focused midcaps index added 2.3 percent and was on track for its biggest weekly percentage gain on record.
Frankie and Benny’s chain owner Restaurant Group rose 12.7 percent after it proposed to carry out a share placement of up to 19.9 percent of the capital, to cushion the hit from ongoing challenges raised by the spread of the coronavirus.
FTSE 100 LIVE: Asian shares have risen this morning
FTSE 100: London’s financial markets have taken a hit amid the coronavirus crisis
Stock markets globally have racked up gains this week amid signs that coronavirus death toll was receding in hard-hit regions of Europe and levelling off in the US hotspot of New York.
Meanwhile, the number of infections and hospital admissions in Britain are beginning to show signs of flattening, a medical director of NHS said on Wednesday.
But that sentiment could be dented as the US prepares for the release of its unemployment figures.
Asian shares were also trading higher on Thursday with MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.6 percent, following a strong Wall Street close.
Shares in China, where the novel coronavirus first emerged late last year, rose 0.54 percent. Australian shares were up 1.52 percent. It comes after Wuhan, where coronavirus was first reported in China at the start of the year, lifted its lockdown measures this week.
Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management Co in Tokyo, said: “There are signs that infections are peaking, which is leading to the change in market sentiment.
“We still need to be very careful, because this is not purely an economic problem.
“It’s more like a natural disaster and, therefore, harder to predict.”
The S&P 500 gained 3.41 percent on Wednesday, helped by hopes the pandemic was nearing its peak. However, US stock futures gave up earlier gains to be down 0.27 percent.
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FTSE 100 markets have rallied
8.30am update: Bank of England to directly fund UK Government crippled by COVID-19 spending
The Bank of England has agreed to temporarily finance government borrowing in response to COVID-19 if funds cannot immediately be raised from debt markets.
This is a measure last used to any large degree during the 2008 financial crisis.
Britain’s government typically borrows money direct from markets through bond issuance, and this week financial markets showed a strong appetite to fund more than £10 billion of government bonds, some at record-low yields.
But markets were far choppier last month – before the BoE said it would buy £200 billion of assets, mostly bonds – and Thursday’s announcement gives the BoE scope to finance the government directly.
The BoE said in a joint statement with the finance ministry: “As a temporary measure, this will provide a short-term source of additional liquidity to the government if needed to smooth its cashflows and support the orderly functioning of markets, through the period of disruption from Covid-19.”
The government and BoE said any borrowing from the Ways and Means facility – effectively the government’s overdraft with the BoE – would be repaid by the end of the year.
The statement said: “The government will continue to use the markets as its primary source of financing, and its response to Covid-19 will be fully funded by additional borrowing through normal debt management operations.”
It comes after BoE Governor Andrew Bailey previously said that the central bank would not engage in ‘monetary financing’ – the permanent funding of government spending, linked to hyperinflation in post World War One Germany and more recently in Zimbabwe.
But Mr Bailey defended the BoE’s existing quantitative easing as a means to keep inflation on target and said action to ensure smooth market functioning was also within the BoE’s remit.
FTSE 100: Bank of England Governor Andrew Bailey
FTSE 100: The Bank of England will directly finance the Government
8.16am update: FTSE rallies
The FTSE-100 index at 8.15am was up 115.47 at 5793.20.
7.46am update: FTSE 100 opening
The FTSE-100 index at 7.44am was unchanged at 5677.73.
7.32am update: Japan bucks regional trend
The Nikkei stock index bucked the regional trend and fell 0.46 percent as coronavirus infections in the country rose, while markets were also jittery following the government’s declaration of a state of emergency for Tokyo and other urban areas.
7.21am update: Oil prices extended gains
This was on hopes major producers will cut output at an OPEC+ meeting later in the day in response to a collapse in global oil demand.
US crude rose 3.07 percent to $ 25.86 a barrel. Brent crude rose 1.98 percent to $ 33.49 per barrel.
The Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia – a group known as OPEC+ – are set to convene a video conference meeting on Thursday.
Hopes of an agreement to cut between 10 million and 15 million barrels per day (bpd) rose after media reports suggested Russia was ready to reduce its output by 1.6 million bpd.
7.13am update: US stocks point to lower opening
Futures showed Dow Jones Industrial Average had fallen 35 points, pointing to an opening slip of about 111 points.
S&P 500 futures and Nasdaq-100 futures were also predicted to open slightly lower on Thursday.
It comes after the Wall Street enjoyed a strong finish yesterday when Bernie Sanders stepped down from the presidential race and Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, laid out his plans for battling coronavirus in the US.
Coronavirus is spreading across the globe
6.22am update: Dow Jones futures fall early Thursday
The Dow Jones Industrial Average has seen a rising strength line, which highlights its recent outperformance on the S&P 500 index.
However, the RS line for the Nasdaq composite has fallen behind due to the coronavirus stock market rally.
This also includes Apple stock and Amazon stock, according to Investor’s Business Daily.
The RS line for Microsoft stock has continued to power ahead, while Dexcom stock and Nvidia stock had strong RS lines until the past few days.
5.39am update: Trump gives US economy update amid coronavirus pandemic – ‘Open with a bang’
Trump, who is seeking to be reelected in the presidential election on November 3, wants to get the economy going again as soon as possible.
However, his medical advisers are urging the president to put these plans on hold as returning to normal life too early could lead to a second deadly outbreak.
Speaking at a White house news briefing Trump said: “We’re ahead of schedule.”
He said the economy could be reopened in phases.
However, Trump said he thought “it would be nice to open with a big bang.”