The FTSE 100 on the Rise Despite Prolonged Lockdown

In Monday’s trading session, the UK’s Financial Times Stock Exchange 100 Index closed at its highest level since the pandemic hit Europe in February 2020. The FTSE 100, Britain’s blue-chip stock index, ended the day almost 0.2% higher, despite prolonged lockdown news.

Prime Minister Boris Johnson announced that lockdown would be extended by an additional four weeks. Initially, all restrictions were due to be lifted on June 21^st. Dubbed ‘Freedom Day’, June 21^st marked stage four of the government’s roadmap out of lockdown.

As a result of the prolonged lockdown, travel and leisure stocks were unable to contribute to the rise of the FTSE 100. Instead, the sector began to slide. However, it didn’t impact the exchange’s overall gains.

Leaps & Bounds

The FTSE 100’s rally was led primarily by the oil giants – Royal Dutch Shell was up by 2.5%, while BP gained 1.9%. These gains resulted from an uptick in energy prices, with one barrel of Brent crude reaching $73.64 per barrel on Monday – the highest it’s been since April 2019. As the world economy begins to recover from COVID-19, oil demand is expected to rise, hence the recent price increase.

Royal Dutch Shell and BP assisted the FTSE 100 index to finish the day at 7146.68 points – 12.6 points higher. This is the highest it’s closed since Monday, February 24^th, 2020. February 2020 marked the beginning of last spring’s market crash, when parts of Lombardy, Italy, went into lockdown due to the initial coronavirus outbreak.

Earlier in the day yesterday, the FTSE 100 hit an intraday high of 7,188 points. This figure represents another high since last February.

Travel & Leisure Continue to Struggle

Despite the FTSE 100’s overall increase, various stocks declined – namely those in the travel and leisure industry.

IAG, the parent company of British Airways, fell by approximately 4.2%. That figure is the largest decline on the FTSE 100. Rolls-Royce, which crafted and services jet engines, followed closely behind, declining by almost 4.1%.

“Rolls-Royce is amongst the biggest decliners as it becomes increasingly apparent that airline flying hours are unlikely to rebound as quickly as anticipated,” said Michael Hewson of CMC Markets.

He went on to say, “In its March update Rolls-Royce management estimated a free cash flow outflow of £2bn for 2021, which was based on wide body engine flying hours of 55% of the levels of 2019, with an expectation of turning cash flow positive at the end of the second half of this fiscal year. On current trends this looks an increasingly tough target to achieve.”

Ryanair and EasyJet were both trading lower, too. However, there is hope that this may prove temporary should UK restrictions be lifted end of July. Adding further fuel to the fire, ambassadors for the European Union have given their support in favour of fully vaccinated people travelling freely within the EU. This is sparking frustrations among UK citizens and airlines.

Also, suffering is hotels and restaurant chains. Whitbread and Intercontinental were down 1.8% and 1.6%, respectively, after the government announced the lockdown extension.

AJ Bell’s financial analyst Danni Hewson elaborated on the impact of the prolonged lockdown. “It’s just four weeks, but for some businesses it will be four weeks too many especially as there are no guarantees 19 July will really bring an end to restrictions,” she said. “There are many reasons to delay, but delay will bring hardship for some, ruined plans for others and the end of the line for a few.”

To Sum Up

“We cannot simply eliminate coronavirus, we must learn to live with it,” said Boris Johnson during a press conference at Downing Street. Traders have already begun to do so and were well-prepared for the lockdown news, having learnt to be more adaptable during the COVID-era. The FTSE 100 is expected to continue climbing despite the uncertainty around the duration of the UK’s lockdown.

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