FTSE hits post-pandemic high, oil bid on OPEC deal

Risk is bid and the FTSE 100 edged out further gains in early trade on Friday to take out the previous post-trough peak struck on Jun 8th, rallying north of 6,530 to make a new post-pandemic high. The move coincides with an increasingly bullish stance on UK equities being taken by investors on hopes for a broad cyclical recovery in 2021 led by vaccines and a UK-EU trade deal being struck. Meanwhile market sentiment may improve as a US stimulus package inches closer to becoming real, with lawmakers getting behind the bipartisan $908bn package on the table now. News that Pfizer would only deliver half the vaccines it had planned to this year due to supply chain problems took a little of the shine off risk and the S&P 500 yesterday after it had struck a record intra-day high. 

 

Brexit talks seem to be going somewhere and yet nowhere. The main barriers of fishing and the level playing field still frustrate. Nevertheless, sterling rallied to its strongest since the Boris Bounce of Dec 2019, briefly hitting $1.35. A lot of that was down to dollar weakness but we also see signs the market is getting upbeat on sterling ahead of an anticipated Brexit deal. Reports suggest the EU (France) brought in new demands at the 11th hour but overall, it’s been the usual smattering of ‘sources’ and reports highlighting divergences amid tentative signs of progress. One ‘senior British source’ said the prospect of securing a deal in the next few days was ‘receding’. We now run the risk of the internal market bill, which returns to the House of Commons next week, being debated and passed by MPs just as talks are at a critical phase, which will likely increase tensions on both sides as the legislation has stirred up unease in the EU. Talks are to continue over the weekend with a view to having a deal before the EU Council meeting of Dec 10th/11th. If we don’t have a deal by then we start to be worried that the talks falter and it becomes a Mexican standoff. 

 

Wall Street was mixed – the S&P 500 closed out marginally weaker though the Dow Jones popped higher thanks to a 6% gain for Boeing. Shares in the aircraft maker rose after Ryanair committed to buying 75 more 737 Max jets. This is a big vote of confidence in the troubled jet and is a welcome boost for Boeing. Ryanair clearly has an eye for a bargain.  

 

Tesla shares rose another 4% to $593 after a Goldman Sachs upgrade. The investment bank raised the12-month price target to $780 from $455 Analysts said the shift toward battery electric vehicle adoption is accelerating more quickly than previously anticipated whilst battery prices are falling faster than previously expected, which improves the economics of EV ownership. Elon Musk told employees to rein in spending though, warning that investors are giving the stock a lot of credit for profitability and would “will immediately get crushed like a soufflé under a sledgehammer”, if they miss on forecasts. 

 

Crude oil prices rose after OPEC agreed a deal with allies to gradually raise output next year. Although it was arguably a slightly less ambitious extension of cuts than had been hoped for, it reflects a divergence of opinion among major producers and the fact less oil is coming on the market in January has put a bid under prices. OPEC+ will gradually raise production by 500k bpd from next month, less than the scheduled increase of 2m bpd under the old agreement. Ministers will now meet monthly to agree to rolling cuts. WTI (Jan) traded at $46.50, its highest since March. The question now is really about compliance, which has been strong overall but unevenly distributed – will the agreement on paper actually pan out on the ground?