UK shares have made a fast start to the new year with the headline FTSE 100 posting an almost 3% gain on the first morning of trading in 2021.

The FTSE 100 was 2.8% higher by mid-morning, taking the index of the UK’s largest shares to its highest level since the Covid-19 pandemic struck in March. Please remember past performance is not a reliable indicator of future returns.

There are a few candidates for what’s driving the gains. Yesterday saw the first jabs of the Oxford-originated Covid-19 vaccine going into patients. The vaccine is easier to roll-out than rival medications and should herald an acceleration of vaccination programmes globally.

Also helping the mood was PMI Manufacturing data in the UK, which rose to its best reading in three years last month. The surge is being put down to stockpiling ahead of the Brexit deadline, so may not be repeated, but has added to the sense that economies are building steam. Elsewhere, UK mortgage approvals also hit a 13-year high.

The week from here is likely to be dominated by news on the pandemic, but also political developments in the US. In the UK, the Government has warned that new restrictions on activity are likely in the coming days as cases soar and ministers fret about the impact of new strains of the disease. 

In the US, this week sees the confirmation of Joe Biden as President-elect. Even at this stage, some resistance to the confirmation is expected from Republicans in the senate, although these are not expected to succeed. Meanwhile, the state of Georgia will hold run-off elections for its two senate seats. If both democratic candidates can win then the party will win control of the senate and hand President Biden much greater control of law-making and budgetary decisions. 

The potential impact of that on markets is unclear, and is potentially a source of volatility this week. Should democrats win control of the senate, even higher stimulus and Covid-relief packages could be passed  - which could help markets - but investors may also be wary that it could open the door for reversals of generous tax cuts handed to corporations by President Trump.

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Five year performance

As at 31 Dec
2015-2016 2016-2017 2017-2018 2018-2019 2019-2020

FTSE 100
19.1 12.0 -8.7 17.3 -11.6

Past performance is not a reliable indicator of future returns

Source: FE, total returns as at 31.12.20

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