Coronavirus live: OECD warning weighs down FTSE 100 recovery
The OECD’s warning that the coronavirus outbreak could halve global growth in 2020 weighed down the FTSE 100 today, sending it back into the red before recovering marginally.
Traders had initially sent London’s blue-chip index up 2.7 per cent this morning on the back of central banks saying they were ready to intervene to protest the world’s economies from the coronavirus.
But the OECD’s alert earlier that the Covid-19 outbreak could halve global growth to just 1.4 per cent sent the FTSE 100 into the red to 6,503 points.
Before closing the FTSE 100 was up 0.9 per cent to 6,650 points but did not climb to this morning’s heights. US stocks also opened higher with S&P 500 and Dow Jones both up 1.69 per cent while the Nasdaq index was up 1.65 per cent.
Earlier the FTSE 100 leapt 2.6 per cent as it sought to shake off a week of losses that wiped £200bn off the FTSE 100.
The FTSE 250 also booked a 1.4 per cent drop and closed 0.13 per cent lower.
Connor Campbell, financial analyst at Spreadex said: “The FTSE was alone in maintaining any significant growth on Monday; and even then its 0.9% increase paled in comparison to the near 3% rise it saw during the morning session.”
“The UK index – which is now back above 6600 – for once actually benefited from its commodity-heavy make-up. With oil and copper holding rising 0.8% and 1%, the likes of Rio Tinto, Shell and BP climbed between 2.1% and 2.8%.”
Coronavirus spread dampens investor sentiment
“Today’s OECD warning has provided yet another reminder of the potential impact of this coronavirus, with early market optimism quickly fading despite ongoing hopes over a likely global stimulus push,” IG senior market analyst Josh Mahony said.
“Irrespective of the stimulus put forward by government or central banks, traders will remain glued to the virus updates given the huge economic implications if it continues to spread.
“For traders, this has provided a timely reminder that the growth picture remains worrisome despite hopes of market-positive action from the authorities.”
Connor Campbell, financial analyst at Spreadex, added:
Desperate for an excuse to enter the market at a discount price, investors clung onto the weekend’s stimulus statements as they surged higher.
Well, that was undermined rather quickly on Monday by an axe-wielding OECD, the institute slashing growth forecasts around the globe.
This caused a swift reversal of the sessions gains, forcing the Eurozone indices into the red. Only the FTSE managed to remain in the green, holding onto a half a percent rise – at one point it was up nearly three per cent – mainly due to the strange of its oil stocks and a couple of its miners.
Bank statement lifts FTSE 100, hurts pound
The Bank of England today pledged to take “all necessary steps” to uphold the British economy’s stability in the face of the coronavirus outbreak.
A Bank spokesperson added: “The Bank continues to monitor developments and is assessing its potential impacts on the global and UK economies and financial systems.”
The Bank continues to monitor developments and is assessing its potential impacts on the global and UK economies and financial systems.
The Bank is working closely with HM Treasury and the FCA – as well as our international partners – to ensure all necessary steps are taken to protect financial and monetary stability.
Bank of England spokesperson
That led sterling to fall as expectations of an interest rate cut to boost consumer spending rose.
The pound slipped 0.46 per cent to $1.276 in early trading.
OECD warning caps FTSE 100 gains
By 8.40am the FTSE 100 had climbed to 6,754.8 points, up 175 points from Friday’s dramatic close. Last week the FTSE 100 booked huge falls almost every day as the number of coronavirus cases surged.
The FTSE 100 had shed most of its gains by mid-morning, however, after the OECD warned global growth could halve as a result of the outbreak.
The world economy’s growth rate could shrink from 2.9 per cent to just 1.5 per cent as a result of the crisis, the Paris group said.
That forced the FTSE 100 to give up most of today’s rise. By 10.40am the index was still in the green, but it was only up by 0.9 per cent at 6,638.6 points.
The OECD warned of a short-lived but intense global economic downturn. And it added the coronavirus could create a domino effect where Covid-19 spreads through advanced economies.
“Huge questions remain for a crisis that could yet see global cities shut down,” online trader IG’s Mahony warned.
“If governments and central banks are to stimulate their way throughout this crisis, the key question is whether those action are taken to minimise the economic impact, or merely the market impact.”
That could not only cause growth to weaken severely. It could also push markets into so-called bear territory where stock indexes experience drops of around 20 per cent.
Today’s risers included Rentokil, up 5.6 per cent, and FTSE 100 pharma giant Hikma, also up 5.6 per cent.
Airline stocks continue to fall on FTSE 100
Travel stocks suffered the brunt of investors’ ire today.
British Airways owner IAG led today’s fallers to sink 11.5 per cent after a week of losses. Its share price is now at 417.8p, down from 642p less than two weeks ago.
Last week it warned of an incalculable profit hit in the wake of coronavirus travel restrictions.
Carnival, which owns the Diamond Princess cruise ship that was quarantined in Japan, fell 7. 6 per cent while Easyjet sank 5.9 per cent.
Easyjet also fell 2.5 per cent as it cancelled Italy flights as people opted not to fly to the Covid-19 hotspot.
AJ Bell investment director Russ Mould also said bargain hunting had lifted FTSE 100 shares.
“Markets typically rise on interest rate cuts,” he pointed out.
“The Bank of England, Bank of Japan and Federal Reserve have all indicated a willingness to provide support, implying coordinated action from central banks.
“There is a semi-reversal of last week’s sector trends. Healthcare and infrastructure-related stocks [are] no longer in favour and heavily sold-off industrial and mining stocks [are] leading the charge upwards.”
Goldman Sachs and Twitter warn staff against travel
Meanwhile, firms issued more warnings on travel restrictions. Investment bank Goldman Sachs told staff to avoid all but essential work travel.
A memo seen by City A.M. said Goldman was extending “precautionary measures”. It said: “Effective immediately, all non-essential international business travel should be postponed.”
Baker Mckenzie and Chevron have sent staff home after possible staff infections with coronavirus.
And Twitter last night banned “non-critical” travel. “Our goal is to reduce the risk that anyone at Twitter might contract or inadvertently spread the virus,” the social media giant said.
“It is important that we take these proactive steps to protect ourselves and others and minimise the spread of Covid-19.”
ECB cancels Commission meeting amid Covid-19 outbreak
The European Central Bank has also cancelled a meeting with the EU Commission as the European outbreak worsens.
“The ECB has decided, in close consultation with the co-organizing European Commission, to postpone for now the conference on European financial integration that was scheduled for Tuesday,” a spokesperson said.
“Several cancellations by conference participants and otherwise increasingly challenging travel logistics have made it preferable to defer a physical meeting for now. The report publication will go ahead as planned,” they added.
Europe raises coronavirus threat to ‘high’
France’s Cac also jumped 1.5 per cent before the OECD warning trimmed gains to just 0.4 per cent. And Germany’s Dax enjoyed a 1.4 per cent climb before falling back to a gain of only 0.15 per cent.
“Expectations for monetary and fiscal stimulus are shooting higher,” Neil Wilson, chief market analyst at Markets.com, said. “This will offer some respite to financial markets.”
However, the coronavirus outbreak continued to climb over the weekend.
And today the EU raised the threat level from moderate to high for citizens. That followed a surge in Covid-19 cases in Italy and Spain. Their confirmed cases now total 1,694 and 84 respectively.
“In other words, the virus continues to spread,” EU Commission president Ursula von der Leyen said.
Almost 40 EU citizens have now died from the virus, while the bloc has counted 2,100 cases across 18 member states.
The rate of deaths slowed in China but around the world the death toll hit 3,048. And the number of coronavirus infections approached the 90,000 mark.
Italy saw a 50 per cent spike in its own number of cases despite 11 towns entering lockdown. And the UK’s coronavirus count hit 36 as Scotland recorded its first case.
Bank of Japan and Fed push up stocks
But FTSE 100 traders this morning pegged their hopes on central banks fighting back against the virus’ ravaging of global stocks.
The Bank of Japan has pledged to use whatever tools necessary to combat the crisis, including injecting stimulus. That sent the Nikkei and Hang Seng indexes up 0.95 per cent and 0.6 per cent respectively.
That followed Friday’s unscheduled announcement from the US Federal Reserve. Chair Jerome Powell said the central bank was monitoring the coronavirus for risks to the US economy.
Markets.com’s Wilson pointed out:
There is definitely an argument that the Fed should step in to stop the rout on Wall Street as this will eventually create a negative feedback loop that feeds into the real economy whatever happens with the virus outbreak itself.
The worry is that the collapse in equity markets leads to problems in the real economy, such as tighter financial conditions, that creates a recession even if the impact from the virus is limited.
China and Italy factory data ‘dreadful’
Spreadex’s Campbell added that central banks’ stimulus statements were “reason enough for the markets to start March in the green” before their reverse today.
“What may dictate how the rest of the day goes is the updated manufacturing PMIs – namely if they are significantly revised from the flash readings posted in February.”
Italy’s factory activity slumped for a 17th month in a row in February, today’s PMI data showed. The country has pledged economic stimulus of €3.6bn in response to a sharp rise in coronavirus cases last week. And China’s factory output fell at the fastest rate on record in February in the latest sign of coronavirus disruption.
David Madden, market analyst at online trader CMC Markets, called the data “nothing short of dreadful”.
“The shocking reports hammer home the view the global economy could undergo a sizeable economic cooling,” he added. “When [China] undergoes a huge shock, the ripple out effect will be big.
The Italian economy contracted 0.3 per cent in the last quarter of 2019. And Madden said: “In light of the coronavirus fears, you can see why traders are worried about a recession hitting. Italy’s banking system is fragile as it is, the last things it needs is an increase in bad debts.”
FTSE 100 stocks like Diageo and British Airways owner IAG sank last week as they issued coronavirus-related profit warnings.
Meanwhile Prime Minister Boris Johnson today finalise the UK’s coronavirus battle plan with his emergency Cobra committee.