The FTSE 100 faltered in afternoon trading, while US stocks sunk into the red as traders remained wary of a second spike in coronavirus infections.
London’s blue-chip index opened down 2.05 per cent to 5,980 points, even as retailers began to open their doors for the first time in three months.
US stocks dropped sharply at the open after a weekend of fresh coronavirus cases, increasing fears of a second wave which could shut down the economy again.
Non-essential retailers are opening today as the UK government eases lockdown in a bid to jumpstart the economy. However, consumers will face an almost unrecognisable experience as retailers limit customers in-store, close dressing rooms and quarantine items.
The FTSE 100 pared back some of its losses to trade down 1.19 per cent by midday, before falling again to stand down 1.73 per cent by 3pm.
Investors have retreated after a long rally in global equities since late March as they anticipate the likely economic shutdown to accompany a second wave of the virus.
European investors also started the week cautiously as several countries started to open borders to allow tourism. The pan-European Stoxx 600 edged up 0.28 per cent in early trading before dropping 0.8 per cent by midday. Germany’s Dax opened 0.18 per cent lower, before inching further into the red to trade down 1.12 per cent. France’s Cac started the day up 0.49 per cent, before falling into the red by lunchtime.
Investors were dealt another blow to sentiment as China’s industrial production figures for May fell short of analysts’ estimates. Industrial output rose 4.4 per cent in May, but analysts had forecast a five per cent gain.
FTSE 100 investors brace for second wave
Markets have been volatile over the past week as investors braced for more infections as lockdown measures are eased. The FTSE 100 regained some ground on Friday. This was despite figures showing the economy had suffered a record 20.4 per cent contraction in April.
It followed a torrid week which saw the index suffer its largest drop since March on Thursday, closing down 3.99 per cent.
The chance of a second spike in infections edged closer this weekend. Beijing closed a large market over the weekend after new cases of coronavirus were discovered. Authorities confirmed 41 symptomatic cases and 46 without symptoms, according to the World Health Organisation (WHO).
Joshua Mahony, senior market analyst at IG, said the spike in China “has highlighted the difficulties that will be found worldwide when attempting to resume economic activity while minimising the spread of the virus.”
Additionally, another 25,000 cases reported in the US on Saturday is unlikely to have quelled the FTSE 100’s investors’ nerves. “Trumps hard stance on the possibility of another US lockdown could spell trouble for US markets given the potential for an overwhelming outbreak down the line,” Mahony added.
Analysts said today’s sell-off had been driven partly by fears of another wave of the pandemic.
Neil Wilson, chief market analyst at Markets.com said: “The dreaded second wave will weigh on equity markets – it is already sparking a wave of selling – and force policymakers to chuck even more money at this.”
However, David Madden, market analyst at CMC Markets, said: “Thursday’s massive sell-off could turn out to be a bump in the bullish road, rather than the beginning of a major reversal in sentiment.”
“For too long dealers largely heard stories about falling infection rates, so a relatively small increase came as a big shock. An occasional jump in cases might become the new normal.”
BP among FTSE’s biggest fallers
BP was among the FTSE 100’s biggest fallers this morning, crashing five per cent on open before paring back some losses to trade down 3.72 per cent by midday.
It said it will write off up to $17.5bn from the value of its assets after the oil price crash earlier this year.
BP said it had lowered its oil price forecast as it anticipated that the aftermath of the pandemic will accelerate the transition to a low-carbon economy.
The oil giant revised its long-term price assumption for benchmark Brent crude, which is currently trading at around $37 a barrel, to around $55 a barrel between 2021 and 2050.
The airlines were back among the FTSE’s biggest fallers, with British Airways owner IAG down 3.99 per cent. Budget airline Easyjet tumbled 3.8 per cent despite resuming operations for the first time since 30 March.
US stocks slip as infections rise
US stocks opened sharply lower as reports of 25,000 new cases reported on Saturday fuelled fears of a second spike.
The Dow Jones index fell 1.31 per cent at the open. It slipped further to trade down 2.03 per cent at 3pm. The S&P 500 opened down 1.56 per cent, while the Nasdaq Composite slipped 1.31 per cent.
It extends losses from last week as volatility came to characterise global markets. The S&P 500 plunged nearly six per cent on Thursday, its biggest fall since the selloff in March.
Analysts think a correction in the markets has been long overdue. “Overbought markets and stretched valuations, coupled with some bad news headlines led to a shot of reality at the end of last week which has continued into this week,” said Seema Shah, chief strategist at Principal Global Investors.
“A litany of concerns has spooked markets – signs of negative progress in Covid-19 cases, a gloomy economic assessment from the Fed, growing doubts around the eventual size of the EU Recovery Fund…” she added.