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British stocks surged on Tuesday, as the market reacted to the post-Brexit trade deal for the first time, amid a wider market rally following the signing of a stimulus bill in the U.S.
The FTSE 100 UKX, +1.86%, the index of London’s top stocks by market capitalization, rose more than 2% on Tuesday to a nine-month high, while the midcap FTSE 250 MCX, +1.89% rose more than 2.2%.
London markets joined European SXXP, +0.73% and Asian N300.NK, +1.84% HSI, +0.96% counterparts in rallying, after U.S. President Donald Trump signed the $900 billion coronavirus stimulus bill into law on Sunday.
That optimism was carried forwards after the approval of an increase of direct-payment checks to most Americans — from $600 to $2,000 — by the U.S. House of Representatives on Monday. A vote on whether to increase the payments will now go before the Senate.
But the big push in London came down to optimism over the post-Brexit deal, which governs the future trading relationship between the U.K. and European Union. It was agreed upon after markets closed on Christmas Eve, and Tuesday is the first trading session British markets have had to digest the agreement after a national holiday on Monday.
More: U.K. and European Union agree on historic post-Brexit trade deal
Plus, this essential reading: A Brexit Trade Deal Has Finally Been Struck. Here’s What It Means for Markets and Investors.
Russ Mould, an analyst at AJ Bell, said that markets seem to be welcoming the deal.
“However, the agreement struck between London and Brussels has yet to win universal acclaim,” Mould added, noting that this is likely the result of the extensive compromises that were required to get the deal done.
“Multinationals, who are the likeliest beneficiaries of frictionless, tariff-free trade and overseas currency earners are generally leading the charge in the FTSE 100, including Intertek ITRK, +3.30% and Diageo DGE, +4.31%. Yet the laggards are nearly all banks and providers of financial services,” Mould said.
He added: “This suggests that nerves remain over what deal will be struck in 2021 when it comes to financial services and indeed services overall, which provides a far greater percentage of U.K. GDP (and the Government’s tax take) than fishing or manufacturing.”
The British banks led the FTSE 100’s list of losers, with shares in Barclays BARC, -2.82%, HSBC HSBA, -0.22%, and NatWest NWG, -2.96% all tumbling, and Lloyds LLOY, -4.14% leading the charge down at more than 4% lower.
Oil also rose on Tuesday, for the third time in four sessions, with prices for both Brent and West Texas Intermediate crude jumping more than 1%.
“Rising investor risk appetite on the back of a Brexit trade deal between the U.K. and EU, expectations of larger direct payments in the U.S., global equity markets hitting record highs, and ongoing weakness in the greenback all provided a boost to energy prices,” said Rony Nehme, analyst at Squared Financial.
London-listed oil companies BP BP, +0.46% and Royal Dutch Shell RDSA, +0.72% joined the FTSE’s rally, with both stocks rising near 1%.
The Hut Group’s THG, +8.23% stock rocketed up close to 8% as the FTSE 100 constituent revealed it had spent more than £300 million ($405 million) on acquisitions. The e-commerce group purchased skin-care retailer Dermstore.com from Target TGT, -0.23% in a $350 million all-cash deal.
Read: Hut Group shares soar more than 30% on market debut in London’s biggest ever tech IPO
Shares in pharmaceutical giant AstraZeneca AZN, +3.72% rose near 4% as an emergency-use authorization of the company’s COVID-19 vaccine, which it developed with the University of Oxford, could be imminent. The pharmaceutical group submitted its vaccine data to U.K. regulators last week.
