“The FTSE 100 is on the front foot as worries about global growth have eased and hopes have lifted that China’s worst covid woes may be over. There was a ripple of relief across European markets after authorities in Shanghai announced a lifting of restrictions from Wednesday, with more production now expected to begin across the manufacturing and tech hub. Stimulus measures to kick start Shanghai’s economy are also helping to lift sentiment, with hopes that they could help revive corporate and consumer spending.
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Retail sales in China fell off a cliff in April, down by more than 11% year on year so the re-opening of shopping malls in Beijing is also being taken as a sign of a brighter spell to come particularly for luxury goods sales. Signs that China is becoming a little more tolerant to covid infection rates has helped lift the share prices of luxury goods companies, with Burberry up 1.5%, LVMH (BIT:LVMH) rising 3.2% and Hermes International (EPA:RMS) up by more than 4%. The covid case load in China has been a source of weakness for companies selling high end products given that the market is still considered to be the growth engine of the sector, but now there are high hopes big spenders will be flocking back to boutiques to get their hands on coveted brands.
European Markets Rise
The lifting of restrictions in China also appears to have helped boost the fortunes of British Airways owner IAG (LON:IAG), which lifted by more than 4%. It’s highly reliant on a bounce back in long haul travel, and a dip in cases in China could herald a fresh wave of bookings internationally, particularly for the more lucrative business seats. Rolls Royce (LON:RR) was lifted higher on the tailwind of relief, given that it’s highly reliant on the number of flying hours airlines complete for its core business of manufacturing and maintaining commercial jet engines.
Expectation that growth will begin to recover in earnest across China has powered the oil price higher, with a barrel of Brent crude touching $120 a barrel, its highest level since early March, soon after the invasion of Ukraine. With the EU still working on an embargo of Russian oil and demand staying particularly high in the US as driving season revs up, factors are conspiring to keep the oil price elevated, increasing the financial pain for many companies and consumers."
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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