Commodity, travel stocks lead British shares higher on recovery optimism

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British shares climbed on Tuesday, boosted by commodity and travel and leisure stocks, after data showed manufacturing activity grew at its fastest pace since 1994 as businesses tried to make up for lost ground during the COVID-19 pandemic.

The blue-chip FTSE 100 index rose 0.5%, with heavyweight oil majors BP and Royal Dutch Shell gaining more than 2% each. The stocks provided the biggest boost on optimism about higher demand as economies reopen.

The wider mining and precious metals mining sub indexes added 1.6% each, tracking higher metal prices.

The domestically focussed mid-cap FTSE 250 index also gained 0.2%.

The FTSE 100 has gained more than 8.5% year-to-date as investors flocked to banks, energy and materials stocks that are seen benefiting the most from a stronger economic recovery due to speedy vaccine rollouts and government policy support.

However, the index has still lagged its European and U.S. counterparts on concerns of sooner-than expected tightening of policy by the central bank on rising inflation.

“Energy and mining stocks are in a good position to benefit from the reflation trade, as they are a natural hedge against the rising inflation,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

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“A relatively stable British pound below the 1.40 against the U.S. dollar, firm energy and commodity prices, and the reflation theme should help FTSE 100 catch up on its delay in the coming quarter.”

Meanwhile, data showed April PMI rose to 60.9 in April. All eyes now are on the Bank of England policy meeting on May 6, where it will likely ease its foot off the stimulus pedal and reduce its pace of bond purchases.

Among other stocks, dollar-earning large companies Diageo , Imperial Brands and British American Tobacco , gained as the pound softened.

Travel and leisure shares jumped with British Airways owner IAG, EasyJet and TUI adding between 2.7% and 4.4% as the European Union aimed to ease COVID-19 travel restrictions next month to let foreign travelers from more countries enter the bloc.

(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V)