The FTSE 100 closed above 7,000 last night, approaching its record high. However, in a sign of the market’s fragility the government sold debt to investors at a negative yield for the first time, meaning they will lose money if they hold it for the full month.
The index rose for a second consecutive week, gaining 0.8 per cent, as European equity markets were buoyed by the Dow Jones industrial average pushing towards the historic 20,000 mark.
Markets were also boosted by Brent crude rallying back to $55 a barrel as investors continued to respond to production cuts agreed this month.
The FTSE 100 ended up 12.63 points, or 0.18 per cent, at 7,011.64 — its highest since late October and up 12 per cent this year.
The pan-European Stoxx 600 — an index of companies across the continent — held near 11-month highs, having gained 6 per cent over the past fortnight. In Paris, the CAC 40 hit fresh highs for the year, up 0.29 per cent to 4,833.27. Germany’s DAX finished up 0.33 per cent at 11,404.01.
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Wall Street, which has been charging to record highs since the election of Donald Trump, opened higher but reversed early slim gains. The Dow Jones closed 8.83 points down at 19,843.41 while the S&P 500 was 0.2 per cent lower at 2,258.07 in New York last night.
The rally in equities has been given impetus since Mr Trump’s election by expectations that the president-elect will honour his rhetoric and boost the world’s biggest economy by cutting taxes and regulation and stepping up spending on infrastructure. It has led to investors buying financial and industrial stocks
With expectations of stronger growth, inflation and higher interest rates and the dollar reaching a 14-year high this week, bonds have been dumped, pushing up yields, which move inversely. However, in a sign that not all investors have bought into the inflation story, the UK was able to sell debt to investors at a negative yield for the first time. The government sold £1 billion of Treasury bills with one-month maturity at a rate of -0.1038 per cent.
Longer-dated government bond yields, however, have been rising, hitting their highest levels since the referendum this week after the US Federal Reserve raised interest rates for only the second time since the financial crisis and signalled three increases next year, rather than the two expected.
The strengthening dollar has also put pressure on the pound, which had steadied since it was sold off sharply after the Brexit vote in June.
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Sterling fell back to its weakest in about three weeks on Thursday after the dollar rallied because of the Fed’s announcement.
In thin dealings yesterday the pound edged up to $1.2439.