FTSE 100 falls as coronavirus cases overshadow Sunak stimulus
The FTSE 100 lost one and a half per cent today as fears over a continued rise in coronavirus cases offset chancellor Rishi Sunak’s £30bn of extra financial firepower.
The UK index initially barely moved after yesterday’s 0.55 per cent drop, which left it at 6,156 points.
By 4pm today the FTSE 100 had fallen 1.61 per cent to 6057 points, dented despite the chancellor’s promise of up to £9.4bn to help bring furloughed staff back into the workforce.
Housebuilder and retail stocks proved the main beneficiaries yesterday after Sunak pledged to slash stamp duty to zero on properties below £500,000 and cut VAT to five per cent on certain hospitality services.
But the FTSE 100 was weighed down as cases escalated around the world yesterday.
“Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase,” David Madden, market analyst at CMC Markets, said.
“As of yesterday, the number of confirmed cases in the US exceeded 3m. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.”
While housebuilders performed well following yesterday’s stamp duty cut, banks, tobacco stocks and dragged the index lower.
“Despite pushing ahead at the market open, the FTSE 100 couldn’t keep up the momentum and quickly dipped into negative territory,” said AJ Bell investment director Russ Mould.
“In the first hour of trading the FTSE 100 was 0.2 per cent lower. In comparison, the mid-cap FTSE 250 index managed to press ahead… thanks to a strong showing from retailers and builders’ merchants including Marks & Spencer, Travis Perkins and Games Workshop.”
European stocks outperform FTSE 100
While the FTSE 100 fell 0.5 per cent, European stocks managed to ride considerably higher.
Germany’s Dax surged 1.5 per cent after software giant SAP outperformed guidance in the first quarter of 2020.
And France’s Cac eked out a 0.26 per cent rise, while the Euro Stoxx 600 climbed 0.44 per cent.
Chris Beauchamp, chief market analyst at spreadbetter IG, called it “a day of drift and indecision for markets” – partly down to a lack of economic or financial data.
“European markets have made gains however, taking their cue from the broadly positive session for Asia overnight,” he added. The Nikkei and Hang Seng rose 0.4 per cent and 0.3 per cent respectively.
Record US cases overshadow Sunak’s stimulus
Sunak’s Summer Statement made big political headlines yesterday as he vowed to pay employers up to £9.4bn to bring back furloughed workers, amid a £30bn pledge to bolster the UK economy.
A temporary cut to VAT for tourism and hospitality to just five per cent, and a promise to pay part of diners’ bills at restaurants throughout August, is hoped to boost some of the worst hit sectors of the economy.
But traders appeared more concerned with huge spikes in cases in the US and Brazil, where President Bolsonaro has contracted Covid-19.
Overnight three US states saw a huge rise in coronavirus infections as the country posted a record 60,000 cases in a single day.
There were 10,000 new cases in Florida, while Texas reported over 9,500 cases and California reported more than 8,500 new infections.
A rise in cases in Hong Kong has added to the growing list of places where the virus has seen a resurgence, although for the time being indices are content to hold their ground, avoiding much downside for the time being.”
Hong Kong has diagnosed 65 new patients since Sunday, with its head of communicable disease branch warning the city could see another “major outbreak”.
“There could be a sudden exponential growth of cases,” Dr. Chuang Shuk-kwan said today.
Analysts said the numbers have spooked the FTSE 100 as the UK reopens.
“Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases,” Madden said.
Meanwhile, the huge cut to stamp duty, active until 31 March 2021, may not be as effective as hoped given “the huge economic uncertainty”, he added.
Housebuilders boosted despite FTSE 100 drop
Housebuilder Persimmon said customer demand has come back strongly in recent weeks as lockdowns are eased. That buoyed housebuilder stocks today, sending Persimmon up over seven per cent.
Fellow housebuilder Vistry also climbed 2.7 per cent higher as it reported a jump in post-lockdown demand.
“Both Persimmon and Vistry have gotten back to work, although we’re yet to see what social distancing measures have done to margins,” Hargreaves Lansdown equity analyst William Ryder said.
“In the absence of a second wave of coronavirus infections the costs of the lockdown are now behind us, but social distancing may hurt profitability over the longer term. In any case, house prices are the key variable, and they’re out of the builders’ hands.”
FTSE 100 stocks Barratt Homes and Taylor Wimpey each climbed almost three per cent higher.
However, the FTSE 100 fell half a per cent overall, as sterling hurt the exporter-heavy index.
The pound climbed 0.33 per cent to $1.265 after Sunak’s pledge yesterday to continue to spend to safeguard the UK economy.
“Yesterday’s statement from the chancellor confirms that the UK government is looking to keep providing stimulus in various forms, even if the amounts discussed on Wednesday are smaller than those seen earlier in the year,” Beauchamp said.
Rise in cases hits US stocks
Wall Street reversed gains it made yesterday after the US hit a record high daily figure of 62,000, bringing the total cases to three million.
The benchmark S&P 500 dropped 1.3 per cent while the Dow Jones fell 1.67 per cent. The tech-heavy Nasdaq was trading down 0.75 per cent by 4pm.
It came despite a better than forecast weekly jobless claims report, which came in at 1.314m compared to last week’s 1.413m.
“Continuing claims dropped but are still at an eye-dropping 18 million level. The recent wave of new coronavirus cases is not yet impacting the labor market yet and many investors are breathing a temporary sigh of relief,” said Edward Moya, Oanda’s senior market analyst.
Financial companies were among the worst performers on the benchmark S&P 500 as Wells Fargo prepared to cut thousands of jobs.
Oil remains anchored just below the $41 level after the jobless claims report seemed to suggest the economic recovery remains somewhat intact.
“Oil seems ripe for a pullback here and if the demand outlook shows further signs of faltering, WTI could settle back towards the mid-$30s,” said Moya.