BOOM! Almost £50bn has been added to the value of Britain’s biggest companies, as the City continues to celebrate Boris Johnson’s election victory.

The FTSE 100 index of top blue-chip companies has just closed 165 points higher at 7519 points, which is a four month high.

That lifts its value by around £41.5bn, and is the biggest points rally since the aftermath of the Brexit vote in 2016.

The smaller FTSE 250 index also had another good day, closing 1.9% higher. That lifts its market capitalisation by around £7.5bn.

So in total, the 350 largest listed companies in London have risen by £49bn today, on top of the £33bn rally on Friday.

Nearly every share on the FTSE rose today, with the banking sector up 3%, industrial stocks up 2.7%, and consumer non-cyclical firms up 2.5%.

Relief that we finally have clarity about Brexit is the main factor. Stocks had also been depressed by concerns that a Labour government would have nationalised utilities and BT’s broadband network.

Plus, global markets are on a tear after the US and China hammered out a Phase One trade deal, despite some scepticism about whether the trade war is really over.

Fiona Cincotta of City Index says the US election result has put City traders in the festive spirits.

With clarity on Brexit and a first phase trade deal agreed investors are more than ready to jump aboard the Santa rally.

This is the last full week of trading prior to the Christmas break, which means that volumes will be starting to thin out and any moves in the market could be exaggerated.

Boom! The FTSE 250 index has hit a new record high.

The index of medium-sized companies is up 385 points today, or 1.8%, at 21893.

The FTSE 250 index contains firms who are too small for the FTSE 100, and is more domestically focused.

Today’s rally means its members are now worth £7bn more than Friday night.

The FTSE 100 index is firmly on track for its biggest one-day bounce since the aftermath of the EU referendum.

The blue-chip index is currently up 2.6%, or 190 points, at 7543, as investors continue to drive stock prices higher.

That means almost £50bn has been added to the index’s value so far today, on top of £20bn added on Friday.

This is its Footsie’s biggest points gain, and percentage gain, since 29th June 2016 -- when the market was rebounding from the shock of the Brexit vote.

“The ‘Boris bounce’ is providing a late turbocharge”, says Richard Hunter, Head of Markets at interactive investor.

Classified car advertising business Autotrader is now the top gainer, up 5.6%, followed by Barclays (+5.2%) and financial marketplace Hargreaves Lansdown (+5.1%).

Every sector that makes up the FTSE 100 is up today, in a broad-based rally.

By my maths, around £43bn has been added to the value of the Footsie today, on top of £20bn on Friday as the Conservative Party won Thursday’s election.

Healthcare companies, industrial stocks, miners, telecoms companies, banks, tech firms and consumer-focused firms are all in demand.

Indeed, academic publishing firm Pearson is the only faller, after being downgraded by City analysts.

The smaller FTSE 250 is still up 1.3%, which adds another £4bn to the combined value of its constituents.

In another blow, Britain’s fiscal watchdog has revised up its forecasts for government borrowing.

The deficit will be roughly £20bn higher per annum over the next five years, the Office for Budget Responsibility has calculated.

This is largely due to “a new accounting treatment for student loans and a material correction to corporation tax receipts,” and is meant to give a better picture of the UK public finances.

The OBR says:

We have restated our March 2019 borrowing forecast to include recent ONS statistical changes but have not incorporated any other new data, new judgements nor include an update to the economy forecast.

After incorporating these changes, borrowing has increased materially by around £20bn each year.

This means the 2019-20 deficit is now expected to hit £47bn, not £28.7bn expected. In 2020-21 it is seen at £ 37.9bn, not £18.9bn.

So effectively, an extra £100bn of borrowing over the next five years!

Although this is a mechanistic change (rather than being based on new economic policies or data), it suggests that the new government may have less firepower at its fingertips to increase spending, without breaking deficit targets.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, blames anxiety over Brexit and the general election for the slump in business activity this month.

“The continuing Brexit-related aversion to investment and a pre-election lack of consumer confidence led to the fastest fall in business activity in December since July 2016....

The biggest shock came in the form of the worst output performance from the manufacturing sector since July 2012. A lack of new orders and the unravelling of pre-Brexit inventories hampered progress and supply chain managers’ purchasing dropped at the fastest pace since 2009 in the absence of a pipeline of work ready and waiting.

Service companies had challenges of their own in the form of another modest rise in costs for food and fuel.

Today’s PMI survey was conducted before the general election -- so firms should now benefit from clarity over the UK’s future.

Brock, though, warns the Brexit won’t be a picnic:

The Brexit path is still littered with obstacles and the need for strong negotiation skills for a future EU agreement will be paramount to avoid this downward slide becoming the economic landscape for an extended period.”

NEWSFLASH: Britain’s private sector is continuing to shrink this month, raising fresh feats that the economy.

Data firm Markit’s “Flash UK Composite Output Index”, which tracks activity across the sector, has dropped to just 48.5 for December.

That’s the worst reading in over three and a half years, down from November’s 49.3. Any reading below 50 shows a contraction, so this suggests the UK economy is shrinking this month - and possibly over the last quarter.

Company bossed blamed “domestic political uncertainty, a lack of clarity in relation to Brexit and subdued global economic conditions” (so at least two of those problems are now resolved!)

Factories are suffering a particularly bad month, with output shrinking at the fastest rate since 2012. Services companies, which make up the bulk of the economy, also reporting falling output.

Here’s the details:

• Flash UK Composite Output Index: 48.5, 41-month low (Nov final: 49.3)
• Flash UK Services Business Activity Index Dec: 49.0, 9-month low (Nov final: 49.3)
• Flash UK Manufacturing Output Index Dec: 45.8, 89-month low (Nov final: 49.1)
• Flash UK Manufacturing PMI: Dec: 47.4, 4-month low (Nov final: 48.9)

Reaction to follow....

Just in: European companies have just posted their weakest growth in five years

That’s according to the latest survey of purchasing managers at eurozone companies, which contrast sharply with the sizzling mood in the markets.

IHS Markit’s eurozone composite PMI, just released, has stuck at 50.6 for December - unchanged from November. While the service sector expanded (with a PMI over 50), manufacturing continued to struggle.

Markit says:

The eurozone economy failed to pick up momentum in December, according to the flash PMI, rounding off a fourth quarter in which output rose at the weakest pace since the economy pulled out of its downturn in the second half of 2013. Employment growth slowed to a five-year low and price pressures moderated further.

However, while the manufacturing recession deepened, the service sector showed welcome signs of resilience in the face of the headwinds from the factory downturn.

By country, France continued to provide a key support to growth in the single currency area, but Germany remained in a mild downturn, fueled by a steepening manufacturing recession. Growth in the rest of the region continued to run at the slowest for six years.

NEWSFLASH: European stock markets have hit an all-time high.

The STOXX 600, which tracks companies across Europe, has gained 0.5% this morning.

The rally is being driven by post-election gains in London. Nearly every stock on the FTSE 100 is higher this morning (banks and miners still leading the way).

Optimism over the US-China trade talks is a key factor, of course, despite scepticism that Friday’s Phase One deal is really a concrete breakthrough.

Connor Campbell of SpreadEx explains:

The US agreed to one of China’s key red lines, i.e. rolling back pre-existing tariffs. However, that reversal has been described as ‘minimal’ – 25% tariffs will be maintained on around $250 billion in goods, while only $120 billion will see the charges reduced to 7.5%.

As for Trump’s key demands, China will now reportedly purchase an extra $16 billion in agricultural goods per year, on top of the $24 billion already pencilled in, taking the total in 2020 and 2021 to at least $40 billion. The President himself said he thinks ‘they’ll hit $50 billion’, and that they’ve ‘already stepped it up’.

However these figures have been greeted with scepticism, if just because of how steep that increase would need to be on historical purchases. In total, including agricultural, manufactured and energy products, the deal would dictate China buys an additional $200 billion in American goods.

Another potential sticking point down the road could be the requirement for China to make ‘structural reforms and other changes to its economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange’ – a vast swathe of significant adjustments in exchange for a relatively minor reduction in tariffs.

Britain’s FTSE 100 index of blue-chip stocks has jumped by 58 points, or 0.8%, at the start of trading.

That takes the Footsie up to 7413 points, close to a two-week high.

Financial stocks are among the risers, with Royal Bank of Scotland rising 3% and Barclays up 1.5%. That suggests increased optimism over the UK’s economic outlook.

Trade optimism is lifting mining stocks, with Glencore gaining 1.8% and BHP Group up 1.5%.

China’s stock market has risen by 0.5% this morning, as traders welcome news of the Phase One trade deal with the US.

But the big action is in Australia, which has posted its biggest one-day rise in seven months. The S&P/ASX 200 index gained 1.6% towards a record high, with mining stocks benefitting from trade optimism.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s a little early for the fabled Santa Rally. But relief that the US and China have reached a preliminary trade deal is pushing markets higher as the final full trading week of 2019 begins.

On Friday, China and the US both held separate press conferences to announce that they reached a so-called phase one trade deal. This ends months of conflict, which has weighed on the global economy..

Under the plan, China has agreed to significantly increase its purchases of US products such as soybeans, factory foods and oil. In return. America has dropped a plan to impose more tariffs on Chinese imports yesterday, and has lowered other tariffs instead.

U.S. Trade Representative Robert Lighthizer insists it’s a significant breakthrough, telling CBS last night that “this is totally done, absolutely.”

But also revealed the text needs to be translated and revised, so there’s still the danger of a last-minute hitch.

Economist are looking for details about what’s been agreed, and whether a more comprehensive trade deal will follow in 2002.

As ING puts it:

What the market needs now, though, is clarity around exactly what the deal entails. The longer we have to wait for this detail, the more likely market participants will start to question how good a deal it actually is.”

But at least we have some certainty on trade, as we do on UK politics.

The Conservative Party’s hefty election win last week is lifting sentiment in the City, and likely to drive shares higher in London. That would add to Friday’s surge, which saw £33bn wiped onto shares in a rally led by housebuilders, utility companies and banks.

Also coming up today

The latest’ flash surveys of purchasing managers from the UK, Europe and the US are released; they may show that the recent economic slowdown is bottoming out.

Britain’s Office for Budget Responsibility is releasing new forecasts for tax, spending and borrowing. These fiscal forecasts were delayed because of the election, and now arrive as Boris Johnson plans a new multi-billion spending spree for those Northern constituencies who turned blue last week.

After the markets close, the Bank of England will release its latest healthcheck on Britain’s banks. The stress tests examine:

..the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, a financial market stress, and an independent stress of misconduct costs. Overall, the stress is more severe than the financial crisis.

The agenda

• 9am GMT: Eurozone flash PMIs for December; expecte to rise to 50.7 from 50.6
• 9.30am GMT: UK flash PMIs for December; expected to rise to 49.5 from 49.3
• 9.30am GMT: UK’s Office for Budget Responsibility to publish fiscal forecasts
• 2.45pm GMT: US flash PMI for December
  
• 5pm GMT: Bank of England to publish UK bank stress tests