The FTSE 100 closed down 1.4 per cent today as the dual impact of interest rate cuts and new coronavirus stimulus measures failed to impress investors.
London’s blue-chip index had jumped as much as 2.1 per cent earlier in the day after the Bank of England announced it would slash UK interest rates to protect the economy from the impact of coronavirus.
Chancellor Rishi Sunak then unveiled his inaugural Budget, which outlined a £30bn stimulus package to support the UK economy through the coronavirus outbreak.
The announcement also contained a raft of other spending policies in what marked the biggest spending spree in almost three decades.
But the moves failed to translate into a positive day for the UK’s benchmark index, which closed the day in the red once again.
“The chancellor of the exchequer might have been forgiven for hoping for a bigger reaction to his budget, but as an ex-hedge funder he will know that the actual market move rarely matches expectations,” said Chris Beauchamp, chief market analyst at IG.
“To be fair, his budget marks a sensible and welcome departure from the austerity of old, and it should mark only the first step on a road to more expansive fiscal policy. But markets have mostly shrugged their shoulders, failing to be enthused by the Conservatives’ new devotion to spending.”
David Madden, market analyst at CMC Markets, said it was “deja vu” for European markets. “The same old health fears are doing the rounds, and that is driving the bearish sentiment,” he said.
FTSE 100 rose on Bank’s record rate cut
This morning’s rise came after the UK’s central bank unexpectedly cut interest rates to 0.25 per cent from 0.75 per cent in an attempt to encourage consumer spending amid the coronavirus outbreak.
The FTSE 100 suffered its worst day since 2008 on Monday, wiping £144bn off the value of UK companies as investors panicked over the spread of the virus across Europe.
Helal Miah, investment research analyst at The Share Centre, said: “Co-ordinated monetary and fiscal measures should in theory be complementary and show consumers and businesses the authorities are acting.”
“However, this is little relief for investors who have lost 15-20 per cent over the past month and this morning’s moves will just become part of the noise in this crisis,” Miah added.
“The very small moves in the pound immediately after the announcement may be a better reflection of insignificance global investors place on this event in the context of the current events.”
UK interest rate cut ‘only initial measure’
“Investors will be hoping this is only Wednesday’s first act of stimulus,” Spreadex financial analyst Connor Campbell said.
“Focus is going to be on what emergency measures the Chancellor announces to cushion the blow, with the markets arguably needing that secondary boost.”
He warned US stocks later could give up their gains of around five per cent when they open this afternoon.
“Currently the futures are pencilling in a 750 points decline, though that drop could be avoided if Donald Trump can get congress to pass the emergency relief plan proposed on earlier in the week,” Campbell added.
US markets began today’s session with further losses, as the Dow Jones slid more than 1,000 points, or 4.6 per cent.
“Late-day rallies show that there are signs of life in equities, but these spasms of bullishness have proven short-lived, with other investors equally content to sell into strength,” said Beauchamp.
Coronavirus is ‘still a spanner in the works’
“Sadly the coronavirus factor puts a spanner in the works and will create uncertainty as to when businesses and consumers are going to get back to normal life,” said Russ Mould, investment director at AJ Bell.
He pointed out a US Federal Reserve cut of 0.5 per cent at the start of March failed to lift stocks, and predicted that the FTSE 100 would lose its gains today.
“Just look at the US market rally post the Federal Reserve’s rate cut on 3 March – it didn’t last long as investors quickly shrugged off the stimulus effort.”
Coronavirus fears on the FTSE were compounded when new data revealed that the number of cases in the UK has jumped sharply from 373 to 456.
Moreover, the World Health Organisation today said the disease had officially been declared a pandemic, and blasted “alarming levels of inaction” by global governments.