Vaccine Hopes Give Way to Caution, UK Politics Dampen Spirits

FTSE price, Vaccine hopes, UK politics and Brexit:

  • A fall in the FTSE 100 index of the major London-listed stocks in early trading Thursday has raised doubts over whether the global rotation from momentum stocks into value stocks prompted by coronavirus vaccine hopes was merely short-covering that will now be reversed.
  • If so, that dampens hopes that the advance will be sustained, particularly as the Brexit talks are at a crucial stage, UK politics are a concern after a resignation of a senior adviser to the Prime Minister, and the latest GDP data missed forecasts.

FTSE 100 hopes dissipate

Hopes earlier this week that a coronavirus vaccine will lift the global economy out of its current slump, which prompted a move into battered value stocks that have suffered most from the pandemic, have begun to dissipate – bad news for the FTSE 100, which has more than its fair share of them.

The vaccine hopes led to a rotation into value stocks from the momentum stocks that have benefited from the pandemic, such as Netflix and Amazon. However, if the feeling grows that the move was simply profit-taking and that the major trend lower in stocks is still in place, this week’s gains could soon be reversed.

FTSE 100 Price Chart, One-Hour Timeframe (November 2-12, 2020)

FTSE Outlook: Vaccine Hopes Give Way to Caution, UK Politics Dampen Spirits

Chart by IG (You can click on it for a larger image)

UK politics and Brexit a worry too

Also dampening the outlook for UK stocks, news emerged late Wednesday of the resignation of a senior advise to UK Prime Minister Boris Johnson, suggesting a power struggle in his office – another potential negative for stocks.

In addition, UK GDP data released early Thursday missed the consensus expectation of economists, although Bank of England Governor Andrew Bailey said later that the numbers were in line with where the central bank thought they would be.

As for Brexit, the Irish Prime Minister Micheal Martin and the UK Housing Secretary Robert Jenrick were both talking their positions on the EU-UK trade talks early Thursday, with still no sign yet of a breakthrough.

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— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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