The FTSE 100 has now fallen by almost 5% over the last five weeks, as fears of a second wave of Covid-19 cases have risen.
As the chart below shows, it fell sharply back on September 21. That was the day that the UK’s Covid-19 alert level was raised, and the government’s chief scientific and medical advisers warned that the country had “turned a corner” for the worse.
Stocks then recovered – as global markets were lifted by hopes of a US stimulus package (and predictions of a Blue Wave in November’s election). But things have soured in recent days, as more local restrictions have been imposed in parts of the UK.
There’s a rather gloomy mood in the City today, as investors watch the FTSE 100 fall to levels not seen since the UK economy was emerging from lockdown.
Fiona Cincotta of City Index points out that the economic pain of the pandemic is rising, as new restrictions are imposed.
Covid cases in the UK and across Europe continue to surge. More areas of the UK are moving into the strictest Tier 3 lockdown, in a move to stem the spread of the virus but will also derail the fragile economic recovery of those areas and potentially the UK as a whole.
The tighter restrictions come as the FCA warns that around 12 million Britain’s are likely to struggle with bills and in repayments as the covid pandemic continues.
Stephen Innes of AXI says the US election race is also hitting equities:
With the pandemic firmly in everybody’s life again and the major macro event of the year just weeks away from its final decision, markets will probably trend more volatile and tack in a defensive manner.
European markets hit one-month low
The latest rise in Covid-19 cases, and the lack of a US stimulus breakthrough, are both weighing on markets across Europe.
The Stoxx 600 index, which tracks the largest European companies, has fallen by 1% to its lowest level since late September.
Germany’s DAX has slumped by 1.6%, with France’s CAC 1.4% lower.
Every sector is down, led by technology, consumer cyclicals, healthcare and industrial stocks.
FTSE 100 hits five-month low
Newsflash: Britain’s FTSE 100 index has slumped to its lowest level since early May, hit by worries over the economic cost of Covid-19.
The blue-chip index has fallen by 50 points, or nearly 1%, to 5723 points – a five-month low.
Stocks most badly hit by the pandemic are among the top fallers. IAG has lost 4%, with office developers British Land and Land Securities both losing 3.1%.
Jet engine maker (and servicer) Rolls-Royce has shed 2.5%, following BA’s decision to cut capacity in the next few months.
The Footsie is also suffering from the pound’s strength this week. Sterling jumped two cents yesterday to $1.313, on reports that negotiations on a trade deal would restart. That pulls down the value of multinationals with large overseas earnings.
IAG to cut capacity after posting £1.2bn loss
The Covid-19 crisis has dragged airline group IAG, the owner of British Airways, deep into the red – and forced the group to cut capacity over the next few months.
IAG told the City this morning that it made a £1.2bn loss in the last quarter – worse than expected – as the pandemic continues to hammer the air travel industry.
IAG’s third-quarter revenues were 83% lower than a year ago, with passenger numbers down 88%.
And in a sign that conditions remain very weak, IAG now plans to run just 30% as many planes as a year ago for the rest of 2020 [the previous goal was 60% capacity].
It told shareholders:
Recent overall bookings have not developed as previously expected due to additional measures implemented by many European governments in response to a second wave of COVID-19 infections, including an increase in local lockdowns and extension of quarantine requirements to travellers from an increasing number of countries.
At the same time, initiatives designed to replace quarantine periods and increase customer confidence to book and travel, such as pre-departure testing and air corridor arrangements, have not been adopted by governments as quickly as anticipated.
Introduction: Covid-19 fears and stimulus angst abounds
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Stop me if you’ve heard this one before, but fears over the Covid-19 pandemic and anxiety over the economic recovery are weighing on the markets today.
Yes, the same old themes are jostling for attention today.
Overnight, France has hit the one-million Covid-19 case mark, Germany has racked up 10,000 cases in a single day, and India’s Covid-19 tally has passed 7.7m.
Meanwhile in Washington, Democrats and Republicans are still wrangling about a possible stimulus package to help businesses and households through the crisis.
White House economic adviser Larry Kudlow – often an upbeat voice on these occasions – told CNBC that “There’s a sense of optimism.”
Negotiations were moving in “a favourable direction,” Kudlow insisted.
But while talks are continuing, hopes of a quick breakthrough are fading with less than a fortnight to the US election.
This is all pushing European stock markets down today, adding to chunky losses yesterday.
With more restrictions being imposed across Europe to curb the virus, investors are losing confidence that growth and corporate earnings will show a sustainable recovery .
As analysts at Deutsche Bank told clients:
On the coronavirus, new records in cases were set across Europe yesterday as governments continue to re-impose restrictions on their citizens.
Here in the UK, a record 26,707 cases were confirmed, while the number of hospitalisations in England rose above 6k for the first time since late May. Elsewhere, both Italy (15,199) and the Netherlands (8,789) also reported new highs, and Spain has become the first nation in Western Europe to record 1 million coronavirus cases in total.
It should be noted however that testing today is much more widespread than it was during the first wave back in March, so countries are much better at picking up the extent of the virus than they were before
Later today, US giants Intel and Coca-Cola will release their latest results. We also get a new healthcheck on UK factories, and the latest US weekly unemployment stats.
- 9.30am BST: Bank of England chief economist Andy Haldane speaks at the Understanding Social Macroeconomics conference
- 10.25am BST: Bank of England governor Andrew Bailey speaks at The Waterline summit 2020
- 11am BST: CBI industrial trends survey
- 1.30pm BST: US weekly jobless report