The FTSE 100 crossed 7,000 points on Friday to reach its highest level since February 2020 as investors piled into the “value” sectors that feature heavily in the UK blue-chip index.
The FTSE rose 0.4 per cent to 7,014 points, breaching the 7,000 threshold for the first time since the coronavirus crisis swept through Europe, led higher by financials, basic materials and industrial stocks.
Similar bets were visible on Wall Street, where the S&P 500 rose 0.3 per cent, touching a new record, while the banking subsector of the blue-chip share index gained 0.8 per cent. The technology-focused Nasdaq Composite slipped 0.1 per cent. Treasuries were steady, as investors banked on the US central bank maintaining ultra-loose monetary policy despite signs of an economic recovery.
The moves followed strong retail sales and employment figures released in the US on Thursday and record quarterly gross domestic product data from China, which often moves markets despite analysts’ long-held misgivings about the validity of the statistics.
US retail sales rose in March by the most in 10 months, while the number of Americans filing for new unemployment benefits fell to a post-pandemic low of 576,000 last week, figures published on Thursday showed.
China on Friday reported an 18.3 per cent year-on-year increase in economic output. The highest-ever recorded jump in the nation’s GDP was slightly below analysts’ expectations and was also flattered by the base effect of Covid-19 shutdowns this time last year.
The UK’s leading share index is stacked with companies that make the bulk of their revenues abroad. It also has the highest weighting of value shares — previously unloved stocks in old economy industries that are sensitive to the economic outlook — of all major world stock markets, according to Citigroup.
Funds that follow momentum trading strategies, which involve backing shares whose prices have been on a positive trend, are also increasingly buying value stocks.
“This is a highly unusual phenomenon, and is occurring as a consequence of reflationary [and] value names now coming top of the common momentum construction algorithms,” equity analysts at Barclays commented.
The Stoxx 600 index, Europe’s regional benchmark, rose 0.7 per cent to a record high.
The yield on the benchmark 10-year Treasury bond was broadly unchanged at 1.594 per cent. The equivalent German bond yield added 0.02 percentage points to minus 0.28 per cent. Bond yields move inversely to prices.
US government bonds had rallied in the previous session, which surprised some analysts in the face of Thursday’s strong economic data.
The government bond market may be receiving a temporary boost from haven buying, said Lombard Odier chief economist Samy Chaar, after US president Joe Biden imposed sanctions on Russia and Chinese state-backed distressed debt manager Huarong Asset Management’s bonds plummeted in recent days.
Peter Westaway, economist at Vanguard, said markets had entered a “goldilocks” phase where stocks were rising on economic growth prospects while bond prices were also gaining because investors had started to believe assurances from the US central bank that it had no immediate plans to raise interest rates.
The moves had caused “a positive correlation” between Treasuries and equities that was storing up problems for investors holding traditional 60-40 portfolios that use government bonds to cushion against stock market falls, he said. “When both asset classes are going in a positive direction, it does not feel so bad, but when the mood changes it will not be ideal.”
The dollar, as measured against a basket of major currencies, traded 0.2 per cent down. Brent crude, the international oil benchmark, dipped 0.3 per cent to $66.72 a barrel.