FTSE 100 slips as doubts set in about new US stimulus
The FTSE 100 continued to trade in the red on Wednesday afternoon as US coronavirus cases continued to rise and investors doubted Congress would pass another stimulus bill within two weeks.
London’s blue-chip index shed 0.59 per cent by 3pm to 6,232 points. The FTSE 250 edged up 0.15 per cent however.
It came after US President Donald Trump said the coronavirus outbreak will probably “get worse before it gets better”.It followed news that coronavirus cases continued to rise in many parts of the country. Infections in California rose about 400,000 while Texas had its second-deadliest day on record.
Investors worry that states could have to go back into stringent lockdowns. That would likely derail the recovery in the world’s biggest economy.
The US Congress is also at loggerheads over the next round of stimulus. Analysts say it could take at least two more weeks.
Europe falls into the red despite recovery fund deal
Losses across Europe deepened in the afternoon session even after news that the EU agreed its coronavirus recovery fund after five days of negotiations.
Germany’s Dax dropped 0.33 per cent while France’s Cac fell 0.99 per cent this afternoon.
“Yesterday’s agreement does appear to break a previously important taboo, which is the creation of some form of common debt,” said Michael Hewson chief market analyst at CMC Markets.
Hewson said there is still reason to be skeptical about the deal, however. “A combined €390bn in grants to the likes of Spain, Italy and Greece as well as Eastern European countries over three to four years is almost inconsequential when compared to the huge €1 trillion stimulus Germany package has provided for its own economy alone.”
However, the euro hit an 18-month high after European Union leaders agreed a €750bn (£680bn) coronavirus recovery fund. It will give out €390bn in grants to the countries that coronavirus hit hardest economically.
The single currency touched $1.155, its highest level since the autumn of 2018.
Asian stock markets were mixed overnight. China’s CSI 300 index rose 0.5 per cent but Japan’s Nikkei fell 0.6 per cent. Hong Kong’s Hang Seng slipped 0.5 per cent.
Read more: Companies borrow £48bn through UK coronavirus loan schemes
Silver and gold soar as FTSE 100 slips
Silver and other commodities were on a tear as some investors bet on a rebound in demand as economies reopen even as the FTSE 100 fell.
Spot prices for silver rose as much as five per cent, taking them 15 per cent higher for the week. They were last up 2.5 per cent. Gold hit a new nine-year high.
Fiona Cincotta, market analyst at City Index, said: “All this talk of stimulus and the US dollar trading at a four-month low has seen gold and silver shoot higher.” Tumbling bond yields have increased the allure of precious metals.
Gold tends to benefit from stimulus measures, since investors view it as a hedge against inflation and currency debasement as central banks create money.
In addition to the EU’s huge €750bn recovery fund, traders are anticipating US lawmakers to agree on some kind of new stimulus package in the coming weeks.
“Demand for safe-havens were already growing after President Trump warned the outbreak will probably get worse before it gets better. Gold is going to keep on shining as US Treasury yields continue to slide, virus worries remain persistent, and talks on fiscal stimulus resume in the US,” said Edward Moya, senior market analyst at Oanda.
Wall Street inches higher on stimulus hopes
While FTSE investors remain cautious on fresh US stimulus, Wall Street edged higher on the prospect of Congress passing a bill to sustain the economy through the pandemic.
The benchmark S&P 500 is up 0.22 per cent and has now moved into positive territory in the year to date – up 0.8 per cent. It is within four per cent of its record closing high reached in late February.
The tech-heavy Nasdaq rose 0.36 per cent higher on Wednesday and has gained 19 per cent since 1 January 2020.
The Dow Jones inched 0.1 per cent higher after opening down 0.06 per cent. Investors started the session more cautiously in the face of fresh US-Sino tensions.
The US ordered China to close its consulate in Houston, further deteriorating ties. Beijing condemned the order and has threatened to retaliate by closing the US consulate in Wuhan.