Blue-chip share values touched their highest level in 14 years yesterday on the back of a ceasefire in Ukraine and hopes that policymakers will signal a stimulus package today for the becalmed eurozone economy.
The FTSE 100, the index of Britain’s biggest listed companies, briefly hit 6,898, its highest since early 2000, after Ukraine said that a permanent ceasefire had been agreed with Russia.
It edged lower after denials from the Kremlin, but still closed the day 44 points higher at 6,874, while on Wall Street American stocks continued to trade a little higher amid hopes that the geopolitical gloom overshadowing stock markets may be easing slightly.
Hopes that Mario Draghi, president of the European Central Bank, will unveil further stimulus today for the troubled single currency area also boosted investor confidence, as did better than expected UK services data.
The FTSE 100 is within 56 points of the closing high of 6,930, and 97 points shy of the intraday record of 6,951 reached on the last trading day of 1999, when share dealers succumbed to the heady brew of overhyped claims for technology stocks and good cheer over the looming millennium celebrations.
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While other markets, such as the United States, have long since passed the records achieved in late 1999, the British market has lagged behind, though, after allowing for dividends, investors have done much better than the headline number suggests.
The tension in Ukraine and bloodshed in northern Iraq are having a significant depressing impact on share values, according to analysts and traders. Andrei Bachurin, chief trader at Renaissance Capital, said that stock indices could push 10 per cent higher if the Ukrainian conflict ended.
Traders are hopeful that the ECB will today take action to slay the threat of deflation and lift growth in the eurozone or, at the very least, promise to launch new stimulus measures soon. Richard Barwell, UK economist for Royal Bank of Scotland, said that the ECB was likely to cut rates by 0.1 percentage points to 0.05 per cent.
Deutsche Bank economists are looking for quantitative easing-lite, a multibillion-euro programme of asset-backed securities purchases from the region’s beleaguered banking sector.
Strong activity levels in the UK’s powerhouse services sector helped to restore confidence in the economy. The purchasing managers’ index for last month hit a ten-month high, putting the economy on track to maintain its growth momentum into the second half of the year.
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Analysts welcomed new data from the Office for National Statistics, which showed that the British economy had been stronger than believed in the post-crisis years. The 2008-09 recession was shallower than thought and the recovery since more rapid.
Paras Anand, head of European equities at Fidelity Worldwide Investment, said it was notable that the recent share market gains had been made in spite of the geopolitical wobbles.
The FTSE 100 has soared by 340 points, or 5 per cent, since the recent nadir on August 8.
However, it still finished below the closing high of 6,878 reached on May 14, when Pfizer’s abortive approach for AstraZeneca boosted hopes of other takeover bids lifting investor sentiment.