FTSE 100 extends recovery from coronavirus sell-off
Britain’s FTSE 100 has risen along with European markets as global stocks extend their recovery from a difficult last week that was marred by fears over coronavirus.
Europe’s equity markets were buoyed by the rise in Asian stock markets overnight, which was driven by the Chinese government’s stimulus measures and better-than-expected US manufacturing data.
Beijing has pumped money into the economy and cut some key interest rates in a bid to contain the economic effects of the virus.
The FTSE 100 was 1.4 per cent higher by 12.45pm. Across the channel, France’s CAC 40 was 1.5 per cent higher, Germany’s Dax was up 1.4 per cent, and the pan-European Euronext 100 had also risen 1.4 per cent.
Overnight, China’s Shanghai stock index climbed 1.3 per cent, Hong Kong’s Hang Seng index rose 1.2 per cent, Japan’s Nikkei finished 0.5 per cent higher, and South Korea’s Kospi rose 1.8 per cent.
Britain’s blue-chip index was aided this morning by a falling pound, reflecting the dim view traders have taken of Prime Minister Boris Johnson’s hard-line approach to trade talks with the EU.
Sterling fell to its lowest level of 2020 early in the day – $1.294. It recovered, however, after construction survey data hinted at an uptick in the UK economy at the start of the year.
Michael Gregory, deputy chief economist at BMO Capital Markets, said: “The nice rebound suggests an expansion is in sight amid the sector’s jump in business optimism.”
The pound had risen 0.1 per cent against the dollar by 12.45pm to $1.301.
Jasper Lawler of London Capital Group said: “A recovery is starting to take hold. Equities are aiming for a second day of gains after a sharp sell-off last week over fears about the economic damage of the coronavirus.”
He added: “Extra liquidity courtesy of Chinese central bankers, instructions from authorities ‘not to panic’ and perhaps some state-backed institutional buying seems to have done the trick.”
In the UK, the FTSE was helped by better-than-expected results from BP, pushing up the oil major’s shares by around four per cent.
Investors also reacted well to plumbing parts firm Ferguson’s statement that it is mulling a US listing. Its shares rose more than five per cent.
Coronavirus – what could happen next?
Paul Danis, a multi-asset portfolio strategist at Brewin Dolphin, said the timing of the coronavirus could not have been worse for China as it celebrated the Lunar New Year.
“With this magnitude of a slowdown, growth in the sector will be hit. By how much will depend on how quickly the spread is contained,” he said.
“The Chinese service sector is likely to take the biggest hit and importantly, has become a much bigger part of the economy compared to when the Sars outbreak occurred.”
Traders are deeply uncertain about the exact toll the virus will take on the economy, however, given that it will only show up in the hard data a month from now.
David Madden, senior analyst at trading platform CMC Markets, warned the threat of the coronavirus is still hanging over European equities.
“The markets have yet to recoup all the ground that was given up last week, so traders haven’t totally shaken off the health fears,” he said.