The FTSE 100 has fallen dramatically and US stocks have turned lower as doubts about the economic recovery set in following a gloomy speech by the governor of the US Federal Reserve.
Britain’s FTSE 100 index dropped 2.8 per cent to finish at 5,741 points. That wiped out all of May’s gains. The mid-cap FTSE 250 ended three per cent lower.
European markets also fell sharply. The continent-wide Stoxx 600 fell 2.2 per cent. Germany’s Dax was two per cent lower and France’s CAC was also down 1.7 per cent.
US stocks fell as Wall Street opened for trading after yet another dire jobs report. More than 36m Americans have now made new jobless claims since the coronavirus pandemic began.
The Dow Jones was down 0.3 per cent lower in early trading. The S&P 500 had fallen 0.7 per cent and the Nasdaq was 1.1 per cent lower.
Global investor sentiment has been dragged down by a speech from Fed chair Jay Powell. He said yesterday that the downturn could have a lasting influence unless the US government carries out more stimulus spending.
He warned that a “a prolonged recession and weak recovery” could result in an “an extended period of low productivity growth and stagnant incomes”. US indices dropped around two per cent yesterday.
Joshua Mahony, senior market analyst at trading platform IG, said: “Global markets are on the slide once again, with traders once again selling risk-assets as fears over another potential crash in stocks comes into view.”
“The lack of market direction over the past month has been a reflection of the uncertainty that has dominated for traders, with initial optimism over impending moves to ease lockdown measures gradually souring.”
FTSE 100 stocks battered
Investor nerves were also shaken after Trump attacked China on Twitter. He said: “We just made a great Trade Deal… and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference – and all those innocent lives lost!”
Asian markets dropped overnight in the wake of the tweet. New coronavirus cases in Hong Kong, South Korea and China have also soured the mood.
In the UK, doubts about the recovery sent energy, construction and travel stocks tumbling on the FTSE 100.
Insurer Prudential was the biggest faller, however, dropping more than six per cent after it said its first-quarter sales in Asia fell 24 per cent to $986m due to coronavirus.
In a sign of the dangers of the pandemic for the insurance industry, insurance market Lloyd’s of London today said it expected to pay out $3bn to $4.3bn (£2.5bn to £3.5bn) in claims stemming from the pandemic.
FTSE 100 titans Shell and British Airways owner IAG both dropped more than five per cent. Housbuilders Persimmon, Barratt and Berkeley were also among the biggest fallers. Only four FTSE 100 stocks rose.
Fiona Cincotta, market analyst at City Index, said: “There will be fundamental changes to many industries.”
She said this will “simply mean that they won’t be able to return to pre-virus level output with social distancing measures in place”.
Doubts set in about recent rally
Stock markets have rallied dramatically in recent weeks, making up more than half of the catastrophic losses they suffered in March and February. The S&P 500 has climbed around 24 per cent since its March lows. The FTSE 100 has gained roughly 14 per cent in that time.
However, many analysts have questioned the rally. They say it does not match the economic reality of the deepest recession since the Great Depression. Now, new cases and rising US-China tensions are making investors nervous.
Fed chair Powell’s speech highlighted that the downturn could have a lasting influence unless the US government carries out more stimulus spending.
Many Wall Street figures have grown wary of the rally. Legendary investor Stan Druckenmiller, former chairman of Duquesne Capital, yesterday said the economic situation meant the risk-reward trade off was one of the worst he has ever seen.
Michael Hewson, chief market analyst at CMC Markets, said he was surprised that markets were only selling now as countries reopened.
“The likelihood of a V-shaped recovery has been a long shot for quite some time now,” he said. He added that it is a “surprise is that it’s taken markets so long to cotton on”.
US Treasury bonds rose in price today, signalling that investors are seeking safe-haven assets. The pound was down 0.3 per cent at $1.22 as investors also sought dollars.