FTSE futures may continue to rise thanks to 'EU-phoria' effect

FTSE futures have been given a boost today by the announcement of a €750 billion EU recovery package, but it is unclear whether the rise will be sustained.

The FTSE 100 futures markets saw modest rises today following the welcome announcement that EU leaders had finally agreed on the terms of a €750 billion post-Covid economic recovery package. However, after an initial surge of more than 60 points, the futures index returned to the red later in the afternoon, before rising yet again.

It is clear that markets are currently uncertain over just how much the UK economy stands to benefit from the EU's stimulus package, although there is widespread sentiment that it will benefit companies and industries that export heavily to EU markets. Let's take a closer look at what today's historic agreement might mean for FTSE futures going forward and whether it is enough to sustain a long-term boost.

EU stimulus package raises hopes of UK recovery

As soon as the announcement from Brussels was made public this morning, UK FTSE futures experienced a strong surge across the board, with banks and aerospace companies leading the charge.

On the FTSE stock exchange, components that had previously been experiencing severe downturns such as Rolls Royce (RR) and the Royal Bank of Scotland (RBS) saw gains of 5.5% and 3%, respectively, in the first few hours of trading. Despite this, much of those gains in the futures market being wiped out by the late afternoon, before rising again before markets in London closed.

There is clearly cause for optimism in the UK as a result of the EU's agreement, which includes billions of euros in grants for consumers and businesses across the bloc to help spur a boom in economic activity. Many of the FTSE 100 and FTSE 250's main components rely heavily on the EU as a primary market, which explains why a strong EU has always been viewed as a positive for UK businesses.

The EU's deal comes just days after the UK announced its own £30 billion economic stimulus package, with today's announcement helping to buttress the belief in some quarters that genuine economic recovery is underway for the whole of Europe.

Concerns over UK's long-term prospects limit FTSE futures

While FTSE futures saw some of the most significant single-day rises in weeks today, much of these gains were erased by the time markets in London closed. A similar effect could be observed yesterday when initial gains prompted by promising hopes of a UK-developed coronavirus vaccine were largely erased by the end of the trading day.

While today's biggest risers, such as Trainline (TRN), have held onto their gains, the broader picture looks a lot more mixed. This is largely because of market sentiment regarding the UK economy's long-term prospects remains mixed.

It was revealed by the government today that UK household finances have suffered their worst hit since the 1970s, compounding fears that consumer spending will remain low in the long-term. In addition, FTSE futures are still weighed down by the Brexit-shaped elephant in the room and will continue to be this way as UK-EU negotiations remain increasingly uncertain.

Also noteworthy is the fact that the EU's stimulus deal will almost certainly strengthen the value of the Euro, which will likely weigh down Sterling and cause headaches for FTSE companies that rely on EU supply chains.

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