Shares in the UK’s leading companies have closed at a post-pandemic high after hopes of economic recovery and calming words from the International Monetary Fund (IMF) boosted the optimism of investors.
Shares on European bourses hit new record levels, with the pan-Europe STOXX 600 index up 0.74% on the day. In New York, equity prices fell back slightly in early trading after hitting record highs on Monday.
Market sentiment was boosted by news that the IMF had revised up its forecasts for global growth this year and by comments from a leading IMF official downplaying the risk that the stimulus provided by central banks would lead to over-exuberance and an imminent crash.
The IMF’s half-yearly Global Financial Stability Report (GSFR) said “extraordinary policy support” had eased financial conditions and supported the economy, helping to contain financial stability risks. While acknowledging that some asset prices appeared “stretched”, the man responsible for the report said he expected stock markets to continue rising, at least for now.
Tobias Adrian, director of the IMF’s monetary and capital markets department, said in an interview: “The markets are stretched relative to fundamentals when you take uncertainty regarding future economic activity into account,” singling out valuations in the tech sector.
“We are in another tech revolution, a bit like 1999, and there could be an adjustment at some point. But my guess is that in the short run, and perhaps the medium run, financial conditions will remain accommodative and the markets will keep on booming,” Adrian said.
The GFSR highlighted two risks – the unintended consequences of highly stimulative policies and the possibility of a financial crisis in emerging countries should interest rates in the US and other advanced countries start to rise.
Sign up to the daily Business Today email
In the City, shares posted gains on the first day of trading since Boris Johnson confirmed the reopening of non-essential shops and hospitality outdoors in England would take