Friday 15 January 2021 6:31 pm

FTSE 100 drops to October lows on recession fears

The FTSE 100 sunk into the red today, capping off its worst weekly performance since the end of October amid fresh Covid woes.

The blue-chip index closed down 0.97 per cent at 6,735 points after new data showed UK GDP fell 2.6 per cent in November, sparking fears of a double-dip recession. 

Read more: UK set for double-dip recession as GDP plummets 2.6 per cent

London’s main market had fallen as much as 1.8 per cent, but recovered some of the losses before the end of trading. The domestically-focused FTSE 250 also slipped, closing 0.77 per cent lower.

Wall Street’s main indexes opened lower today as incoming President Joe Biden’s $1.9 trillion stimulus plan sparked fears of an increase in taxes, while investors parsed quarterly reports from major US lenders.

The Dow Jones was down 64.7 points, or 0.21 per cent by 6.30pm. The S&P 500 fell 0.31 per cent while the Nasdaq Composite dropped 0.27 per cent.

Read more: Liz Truss to meet with Joe Biden’s new trade team over US tariffs on Scotch whisky

Lockdown hits GDP

The UK economy shrank by 2.6 per cent in November as the Covid-19 pandemic took hold of sectors across the country.

The Bank of England estimated Britain’s economy shrank by just over 1 per cent over the final three months of 2020.

Elsewhere European stocks were set to end the week on a cautious note as the prospect of tighter lockdowns in Germany and France as well as new Covid-19 restrictions in China cut into optimism about a global economic recovery.

Read more: Before the Bell: Details of Biden’s $1.9 trillion stimulus package

The pan-European Stoxx 600 index fell more than one per cent, while Germany’s Dax and the French Cac 40 both closed lowers.

Yesterday markets in London and on Wall Street rose on Biden’s stimulus package hopes, but investor sentiment has since cooled. 

Overnight, US President-elect Joe Biden revealed a stimulus package of $1.9 trillion.

“It was at the upper end of estimates,” David Madden, market analyst at CMC Markets UK, told City A.M. this morning.

The programme includes direct payments of $1,400 to most Americans, as Madden added that it is worth noting that last month’s $900bn relief package includes $600 payments.

Read more: Before the Bell: Details of Biden’s $1.9 trillion stimulus package

Banks drag down US stocks

Wall Street’s main indexes were all trading lower this afternoon, dragged down by a string of downbeat earnings reports from major banks.

Shares in JP Morgan Citigroup and Wells Fargo all sank in afternoon trading, even as the lenders delivered better-than-expected fourth-quarter profits.

Concerns about the slow rollout of Covid-19 vaccines in the US, as well as tax hike fears related to Biden’s stimulus proposal, also weighed on stocks.

“The markets suffered a sophomore slump in the second week of the year, culminating in some rather ugly losses this Friday afternoon,” said Connor Campbell at Spreadex.

“Conscious of the difficulties in getting anything done in the American political system, let alone when you are trying to impeach the outgoing President, investors greeted Joe Biden’s $1.9 trillion covid-19 stimulus plan with a ‘we’ll see’.

“Unfortunately that meant attention lingered on a rough couple of days for US data. Following on from Thursday’s sky high jobless claims figure – the worst since the end of August, and perilously close to the 1m mark – investors had to deal with a pair of glum December retail sales readings suggestive of a tough Christmas across the country.”