Monday 23 March 2020 6:01 pm

FTSE 100 slumps despite massive Fed intervention

FTSE 100 and global stocks tumbled today despite a massive intervention by the US Federal Reserve to try and stabilise coronavirus-ravaged markets.

Britain’s blue-chip stock index closed nearly 3.8 per down at 4,993 points. The pan-European Stoxx 600 closed down 4.3 per cent, Germany’s Dax closed down 2.1 per cent and France’s CAC 40 ended the day down 3.3 per cent.

In the US, the S&P 500 was down 2.9 per cent, the Dow fell 2.9 per cent and the Nasdaq Composite fell 1.1 per cent.

Read more: UK job security perception plunges as coronavirus spreads

The slide in stocks came despite a pledge by the US Federal Reserve to buy a potentially unlimited amount of government debt and ramp up lending support to businesses in its latest massive intervention in an economy ravaged by coronavirus.

“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” the Fed said in a statement today.

The Fed’s intervention initially calmed markets, but those gains have now mostly been lost.

The FTSE 100’s slump came after Prime Minister Boris Johnson on Friday evening said all pubs, bars and restaurants must close. 

Johnson then threatened an Italian-style lockdown if Britons flout advice to stay indoors wherever possible to stop the spread of coronavirus. Such measures would cause consumer demand to plummet.

In Italy, the government shut down all but essential businesses to shut down. Coronavirus has now killed more than 5,000 in Italy. Globally the virus has infected more than 330,000 people and killed more than 14,500.

Stock markets have fallen “as countries across the globe adopt increasingly stricter measures to stop the spread of coronavirus,” said Fiona Cincotta, analyst at City Index.

“These very measures are threatening to overwhelm central banks’ efforts to cushion the economic fallout from coronavirus, increasing the prospect of a deep global recession.”

Fed announces ‘aggressive efforts’

The Fed said today it will buy bonds “in the amounts needed to support smooth market functioning and effective transmission of monetary policy”.

It had previously committed to buying at least $500bn (£434bn) of government bonds and $200bn of mortgage-backed securities. The Fed’s latest statement paves the way for potentially a big expansion of its quantitative easing (QE) programme, under which it creates digital money to buy bonds.

The central bank’s intervention came as the US Senate remained gridlocked over a stimulus package that could be worth almost $2 trillion. Senate Democrats blocked the Republican-designed package, saying it did not do enough for workers or hospitals.

Read more: Bank of England slashes rates to historic low amid coronavirus pandemic

The Federal Reserve threw the kitchen sink at the problem caused by the coronavirus outbreak today and although the markets initially welcomed the news, the gains have since evaporated,” said Fawad Razaqzada, independent market analyst at Tradingcandles.com.

“The problem is that the Fed is addressing the supply of credit, whereas the problem is demand – or lack thereof – by households and businesses as the global economy shuts down.

“Market participants are preparing for the worst-case scenario and clearly speculate that there will be a massive slowdown in the global economy and a spike in unemployment,” he added.

Stocks plunge as demand for dollar rises

Shares fell across the board in the UK as companies issued profit warnings and slashed dividends.

Shares in retail group Associated British Foods fell 7.5 per cent to 1,627p after it said Primark was closing all of its stores around the world in a move that is likely to cost roughly £650m worth of net sales per month.

Fashion retailer Ted Baker closed down 7.6 per cent at 160p after saying it will shut shops and outlets that accounted for about 38 per cent of its global sales in 2020.

Broadcasting giant ITV closed down nearly five per cent after it pulled its dividend and said it could no longer forecast its ad sales or yearly outcome.

Traders bought government bonds as they continued to sell shares. The yield on the US 10-year Treasury fell 0.19 percentage points to 0.748 per cent. Yields move inversely to price.

Read more: ITV drops dividend and outlook as pandemic hits advertising

However, the fall in bond yields was small compared to the fall in equities, suggesting investors are exiting their positions in favour of holding cash, particularly the dollar.

The pound fell once per cent against the dollar to $1.152 in a sign of demand for the greenback, which is seen as a safe asset at times of serious economic stress.

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