President Biden is set to issue $1400 per person to Americans in direct payments as part of the latest US stimulus plan, and according to a Deutsche Bank survey of online brokerage users, they plan to put 37% of their cheques into betting on equities.
US retail investors have already been spurring massive gains in some parts of the stock market, often leveraging up their investments by borrowing money in the hope of reaping bigger profits.
Analysts at Bank of America have also predicted an increase in stock market investing from the next round of cheques, which could boost the US markets and spillover into European stocks.
The FTSE 100 jumped 32 points to 6793.49 with Flutter surging to the top of the leaderboard with a 6% gain after it confirmed it could launch an IPO of its Fan Duel business in New York to boost its profile there.
BT also leaped 3% on hopes that it will get a decent deal with Ofcom this week allowing it to make a “reasonable return” on its multibillion pound investment in fibre rollout across the UK.
Commodities stocks kept a lid on the FTSE’s gains, with steel producer Evraz, BP and Shell all falling 1-2%.
Other macro factors potentially affecting the FTSE in the coming days and weeks include talk of a potential risk of sterling falling because so much of it has been bought by foreign investors in recent months. The Times reported that non-resident sterling bank deposits rose to nearly £100 billion – close to the record £117 billion in August 2008, just before the currency plunged 25%.
The fear is that the pound’s rally since July 2019 from $1.25 to $1.40 could suddenly reverse if foreign investors get jittery, as they are prone to do.
Quite what the impact could be on share prices is a moot point. To a certain extent, shares gain when the pound falls because it makes multinationals’ overseas profits more valuable. But if it falls too far, it could cause investors to fear a wider crisis in the UK economy, and damage equities.
On the plus side for the UK economy, data today showed domestic orders from UK manufacturers had risen healthily in the first quarter of the year, helping offset Covid and Brexit disruption. Make UK and BDO put the improved order flow down to the vaccine programme boosting confidence and outpacing a sharp fall in export orders.
Asian markets were lacklustre today despite strong consumer spending data coming out of China. Retail sales in the first two months of the year surged 33.8% – albeit compared to the same months last year when the country was in a savage lockdown.
Chinese industrial production also jumped but unemployment also came in higher, at 5.5%.
Investors had feared a big sell-off in the euro after the weekend’s poor showing for German chancellor Angela Merkel’s CDU party in local elections.
CMC Markets cited her government’s “bungled” vaccines programme and said the results “call into question what type of government Germany will be left with in the upcoming autumn elections, given [Merkel] isn’t running.”
In the event, however, the Eurozone currency shrugged off the election result, although traders were eyeing it with caution. CMC said the current rebound in the euro-dollar “looks shaky”.
The coming week will see further interest in how US tech stocks perform – particularly among investors in UK fund manager Baillie Gifford’s funds and shares. It has been one of the biggest investors in US Big Tech and has seen its various funds’ stock prices slip in recent weeks after stellar rises last year as tech valuations came off the boil.
That hasn’t stopped it investing in the latest round of funding for Stripe, the online payments provider, which has just raised $600 million of new equity at a valuation of the whole company of $95 billion. That makes it the most valuable private company Silicon Valley has ever produced, the FT reported today.
Stripe was founded in 2010 by two Irish brothers, Patrick and John Collison – now aged 32 and 30 – and its value has almost tripled in less than a year.
Rising interest rate expectations has led to many investors being nervous about the gains seen in tech companies last year, even for companies like Stripe which are surfing the undeniable boom in online shopping.