Tuesday 7 July 2020 3:02 pm

FTSE 100 and US stocks drop on economy warnings

The FTSE 100 and US stocks have fallen as investors weigh persistent worries about the economy against countries’ moves to reopen after lengthy coronavirus lockdowns.

London’s blue-chip index was 1.6 per cent lower this afternoon, at 6,187 points. It rose more than two per cent yesterday after Chinese shares rallied more than five per cent.

Read more: UK unemployment rate could hit 15 per cent with second Covid wave, says OECD

In the US, Wall Street opened lower. The S&P 500 slipped 0.3 per cent after five days of gains. The Dow Jones was 0.7 per cent down but the Nasdaq climbed 0.1 per cent.

European stocks were also down. Germany’s Dax was 1.3 per cent lower and the continent-wide Stoxx 600 had fallen one per cent.

Investors started the week in a bullish mood. But they lost their confidence today amid economic warnings and rising coronavirus cases in the US.

Warnings over economy spook FTSE 100

The European Commission this morning said the Eurozone economy will fare worse than initially expected this year. It now foresees a contraction of 8.7 per cent in the single currency area in 2020, down from 7.7 per cent at its last guess.

Commission economy chief Valdis Dombrovskis said the crisis would have an uneven effect. “We will need to be vigilant about the differing pace of the recovery,” he said. 

Read more: Rishi Sunak’s summer statement: What can we expect?

US Federal Reserve official Raphael Bostic today told the Financial Times that there are signs that the American recovery is “levelling off”.

“There are a couple of things that we are seeing and some of them are troubling,” the Atlanta Fed president said. He added that they “might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise”.

Rising coronavirus cases temper optimism

Despite persistent worries about the economy, global stock markets are between 20 and 30 per cent higher than their March low. This is largely thanks to unprecedented stimulus measures from governments and central banks.

Craig Erlam, senior market analyst at currency firm Oanda, said: “We are heading into second-quarter earnings season though which will naturally be a disaster.” Yet he said it will “likely get a free pass as investors focus more on the reopening prospects”.

Yet the continuing surge of coronavirus cases in the US is worrying some investors. It has caused some states like Texas to cancel some of their reopening plans.

Michael Hewson chief market analyst at CMC Markets, said: “While optimism of a ‘V-shaped’ recovery still remains quite high it is being tempered by concerns about rising coronavirus cases globally.”

He pointed out that the FTSE 100 has not enjoyed the gains of some markets. “The index continues its underperformance, with the index way off its June peaks, unlike the rest of Europe.”

Read more: UK coronavirus death toll passes 55,000, tally of official data shows

Asian markets were more subdued overnight, although the CSI 300 index of Chinese shares still rose 1.1 per cent. Hong Kong’s Hang Seng index slipped 0.5 per cent, while Japan’s Nikkei fell 0.4 per cent.

On the currency markets, the pound was 0.5 per cent higher against the dollar at $1.255. The euro was 0.2 per cent lower at $1.129.