Tuesday 10 March 2020 4:48 pm

Coronavirus: FTSE 100 falters as European stocks fall back

The FTSE 100 dipped in and out of the red in a volatile afternoon of trading after Black Monday’s global stocks meltdown, before closing up 0.23 per cent.

The FTSE 100 and other European indices rose in early trading after President Trump revealed he was preparing a major economic relief strategy.

However the semblance of calm soon deteriorated in afternoon trading as the FTSE fell as low as 0.48 per cent to 5,947, after rising almost four per cent in morning trading.

It pales in comparison to yesterday’s rout which wiped £125bn off London’s blue-chip stocks, as it closed 7.69 per cent lower.

Germany’s Dax closed down 1.04 per cent to 10,514 points, while France’s Cac fell 1.46 per cent to close at 4,639 points. The continental-wide index Stoxx 600 finished the day down nearly 0.87 per cent.

Read more: Global stocks plunge amid oil crash and coronavirus outbreak

Global stocks yesterday suffered their worst day of trading since the 2008 financial crisis, as a massive sell-off of Wall Street stocks triggered an automatic 15-minute break in selling designed to avoid a market capitulation.

S&P 500 futures are down 0.2 per cent to 2,742 after President Donald Trump called the US Federal Reserve “pathetic” for not having already slashed interest rates.

Connor Campbell, financial analyst at Spreadex, said: “Investors simply seemed to lose confidence in the rebound, lacking significant justification for a comeback as great as that seen at lunchtime.”

“Now the day may be seen as a win if the European and US indices simply avoided seriously extending Monday’s disastrous losses.”

Trump stimulus plans boost stocks

The FTSE 100 rose after US President Donald Trump said his government would propose a “substantial” economic stimulus package to battle coronavirus.

Trump said he will ask Congress to approve a payroll tax cut yesterday, before previewing economic stimulus plans he called “major” and “very dramatic”.

The President has piled pressure on the US Federal Reserve to make deep interest rate cuts to prop up the economy during the coronavirus crisis.

Read more: Federal Reserve slashes interest rates over coronavirus fears

Traders are betting on a 0.75 percentage point rate cut from the Fed, despite the central bank already slashing US rates by 0.5 percentage points.

“Yesterday’s collapse in global stock markets has been partly reversed in anticipation of a Trump stimulus plan, with US markets, incredibly, on their way to a ‘limit-up’ scenario,” online trader IG’s senior market analyst Josh Mahony said.

“Market sentiment has taken a turn for the better, as ongoing fears over the economic impact of the coronavirus have cooled in anticipation of a major stimulus package from President Trump today.

“While his address is expected to lay out proposals for a temporary payroll tax cut and measures to help those adversely affected by the virus, they are still just proposals which would need approval from lawmakers.”

Rebound in European stocks slows

France’s Cac index rose as much as 3.9 per cent today, before falling to trade just 0.6 per cent higher at 3pmm. Similarly Germany’s Dax is now just 0.83 per cent higher following a 3.4 per cent rise in early trading.

The continent-wide Stoxx 600 rose 3.8 per cent this morning, before erasing gains to trade 0.25 per cent lower.

BP and Shell, which recorded their worst day ever on the stock market yesterday, also recovered somewhat. BP rose 5.6 per cent in early trading to 336p before falling to 324.45p at 3pm, while Shell rose 7.9 per cent to 1,408p before falling to 1,340p.

Read more: How many coronavirus cases does your London borough have?

Chris Beauchamp, chief market analyst at IG, said: “Markets, particularly in Europe, have been unable to hold on to gains, with wild intraday swings continuing to dominate the trading day.”

“Ultimately, governments and central banks still look like they are playing catch-up to a fast-moving situation, and there is a weary sense that Thursday’s ECB meeting could go the same way.”

More volatility to come for FTSE 100

Still, analysts warned more volatility could be yet to come. Italy last night said that it will place the entire country on lockdown. Traders took that to mean the economic damage wrought by coronavirus has a while left to run.

Travel restrictions and school closures are now affecting the entire economy. Italy now counts 9,172 coronavirus infections and a death toll of 463.

Read more: Inside the Italy lockdown: Life in Europe’s coronavirus quarantine zone

With coronavirus spreading rapidly, other European countries could yet impose similar measures. “Quarantines, goods shortages, even civil disorder need to be priced in,” London Capital Group head of research Jasper Lawler said. “We think we are probably not there yet.”

Could the UK slash interest rates?

For now, traders have bought back into the FTSE 100 with the Bank of England under pressure to cut rates to ward off a recession. 

The Bank may be forced to slash rates close to zero, with investors pinning hopes on a 0.5 percentage point cut within weeks in response to the threat of a global recession. That would leave UK interest rates at 0.25 per cent, a dramatic low.

Read more: George Osborne’s former adviser Rupert Harrison: Extra spending in Budget is ‘welcome’

But with the US Federal Reserve set to slash rates by 0.75 percentage points, after a 0.5 percentage point cut already in response to coronavirus, Lawler questioned whether central banks have the tools to prop up their economies.

“Markets have gotten used to being saved by central banks, and the knowledge that central banks have less ammunition to save them this time is adding to the fear factor,” he said.

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