Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, notes: "After months of stomach-turning turbulence, the travel sector has flown into brighter skies with the announcement that double vaccinated UK travellers would be able to return from countries graded as amber on the UK travel list, without needing to quarantine.
"The news immediately pulled British Airways owner IAG, easyJet and Ryanair out of another tailspin and onto a flight path back into positive territory. IAG topped the FTSE 100 risers’ board for a short time, rising by around 2% [...] before falling back, amid hopes a surge in transatlantic travel will finally boost its fortunes.
"A lift-off in flight bookings is now expected, and the airlines have been keen to stress they are ready to move quickly to capitalise on pent-up demand. Tour operator TUI also surged away from losses, with expectation of a flood of enquiries for last-minute package holidays.
"The relaxation of the rules also gave Rolls Royce a recovery boost, with shares gaining ground [...] The group’s core business is servicing and delivering wide body aircraft engines, which are used primarily for long-haul flights, so now its longer-term prospects look a little brighter. However, worries will persist that, although British travellers might have a freer pass to travel, the spread of the Delta variant may lead to other countries imposing tougher quarantine rules on visitors. Testing requirements are also likely to continue to be a headache and an added expense for tourists, so could dampen demand a little.
"The new rules also sparked a gradual recovery for Premier Inn owner Whitbread, which had been languishing down by more than 4% [...] Domestic COVID isolation rules have been causing havoc for the hospitality sector, and tough rules on incoming tourists had restricted business, so the opening up has been met with some relief from investors [...]
"The combined chants of central banks that price rises wouldn’t be sustained over the longer term have hit a note of discord with Federal Reserve officials, saying the recent inflation jump was higher than expected, and that the mass bond-buying programme may need to be scaled back sooner rather than later. Sectors such as transportation and hospitality have already reported worker shortages, and now the recent update from the Recruitment and Employment Confederation is adding fuel to the wage rise fire. The survey showed hourly rates for temporary workers have spiked, increasing at the fastest rate since 2004 in June. Alongside the inflation warning lights, and potential withdrawal of economic stimulus, come concerns that the Delta variant could trip up recovery in countries around the world, particularly with the effectiveness of vaccines coming under question.
"Persimmon’s investors were pessimistic, and the house builder was the biggest faller on the FTSE 100 [...] down more than 4%, despite numbers out showing a bulging order book, an acceleration of build rates and higher selling prices. Indications that the housing market is cooling has nudged sentiment down, amid nervousness about high COVID transmission rates in the UK.
"Although miners are usually seen as a hedge against higher inflation, they were not immune to the sell off with Anglo American, Glencore and Antofagasta falling as concerns about the slowing economic recovery led to expectations of lower demand for metals and minerals.
"Financial stocks like Barclays and Lloyds were also deep in the red zone, as falling bond yields leads to worries that net interest rates will stay lower for longer, eating into margins the banks can earn on loans."