The City of London, not usually given to sentimentality, found itself swept up in a most unlikely rally on Wednesday. The FTSE 100 closed up 1.4 per cent, a surge that market participants attributed not to any fundamental shift in fiscal or monetary policy, but to the New York Knicks' improbable game seven victory in the NBA Finals. It sounds daft, I know. But try telling that to the traders who swore the transatlantic mood lift was the only catalyst for a volume spike that saw 12 million more shares change hands than the 30-day average.
The Knicks, down 3-1 in the series, mounted a historic comeback that culminated in a 104-101 win over the Denver Nuggets. The final buzzer echoed through Madison Square Garden at 11:15 pm New York time, just as London desks were opening. By 7:30 am, gilt yields had eased two basis points, and the pound had ticked higher against the dollar. Coincidence? Perhaps. But in a market starved of good news, any positive signal is amplified.
'It's pure animal spirits,' said a senior trader at a major investment bank who asked not to be named. 'We've had months of doom and gloom. Inflation stubborn, rates high, the Chancellor's fiscal headroom evaporating. Then suddenly everyone's talking about the Knicks. The sentiment just bled into equities. It's irrational, but markets are rarely rational.'
The rally was broad-based, with financials and consumer discretionary stocks leading the charge. Barclays gained 2.3 per cent, and JD Sports Fashion added 3.1 per cent. Even the usually defensive utilities sector saw a lift, with National Grid up 0.8 per cent. The VIX, Wall Street's fear gauge, dropped 7 per cent in early New York trading, confirming the cross-border mood improvement.
Of course, the cynic in me notes that the Knicks' victory does nothing to change the Bank of England's inflation outlook or the government's borrowing costs. But financial markets are a confidence game, and right now, confidence is being imported from a basketball court. The real worry is that this euphoria will fade as quickly as it arrived, leaving investors exposed to the same old headwinds. For now, though, the City is happy to ride the Knicks' coattails. Let's just hope the hangover doesn't last as long as the last one did.
