FTSE 100 shares plunge amid fears over second Covid lockdown

Shares in London have suffered their worst losses in more than three months amid fears that a second wave of Covid-19 cases will force the government into harsh lockdown measures that will damage the economy.

The FTSE 100 – the leading benchmark of the UK stock market – closed more than 200 points lower at 5804 points on a day that saw sharp falls in equities in both Europe and North America.

More than £50b was wiped off the value of leading UK-quoted companies as hopes of new treatments for Covid-19 were outweighed by concerns about a double-dip recession.

Larry Kudlow, Donald Trump’s economic adviser, expressed the views of many jittery investors when he said there was a worry that the UK and other parts of Europe might shut down again because of the virus.

Neil MacKinnon, global macro strategist at VTB Capital, said: “Many economic commentators think that another lockdown would be disastrous for the major economies and undermine the nascent economic recovery which has been in place in the last few months.

“A new lockdown would significantly increase both the unemployment rate and bankruptcy rates, especially for small businesses.”

Oil prices also tumbled amid growing concerns that Western economies are in for a tough winter in which demand for crude will be lower than previously expected.

The cost of benchmark Brent crude was down by almost 2% at $42 a barrel on a day in which financial markets returned to their jittery state of February and March, when the implications of the first wave of the virus became apparent.

An early decline in shares on Wall Street added to the gloom in Europe. All three of New York’s main measures on stock market health – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – were down in early trading.

Analysts said the upbeat mood which saw share prices hit new record levels in the US last month has dissipated as investors weighed up the prospect of slower growth and the receding prospect of a deal between Republicans and Democrats on Capitol Hill t agree a new stimulus package.

With the health secretary, Matt Hancock, warning that the UK was at a coronavirus “tipping point” and that people tended to contract Covid-19 in social settings, shares in travel and hospitality companies in the FTSE 100 and the broader FTSE 250 were among the hardest hit by the sell-off. The British Airways owner, IAG, pubs groups Mitchells & Butlers and JD Wetherspoon all fell sharply.

The transport secretary, Grant Shapps, said the government could not wait for deaths to start rising before taking action.

London was not alone in big falls in share prices. Markets in the rest of Europe were also affected by the new mood of pessimism, with Frankfurt’s DAX index slumping by 4.4%.

“Concerns are rising that the summer recovery is probably as good as it gets when it comes to the recent rebound in economic activity,” said Michael Hewson, the chief market analyst at CMC Markets UK.

“This reality combined with the growing realisation that a vaccine remains many months away, despite [Donald] Trump’s claims to the contrary, has made investors increasingly nervous, as we head into an autumn that could see lockdowns reimposed.”

Reports that UK banks had channeled illicit funds over more than two decades added to the woes of the FTSE 100, which is heavily weighted with bank shares. Germany’s Deutsche Bank, which was allegedly responsible for half the suspicious transactions notified to the US authorities was one of the biggest fallers in Frankfurt, losing 8% of its value.

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Hancock said preventative measures taken by the government would be different from the blanket lockdown, which led to a 25% slump in economic activity in two months after being introduced at the end of March.

The economy began to claw back some of the lost ground from May onwards, but there are growing concerns that the recovery will peter out if new restrictions are imposed.

Ministers are determined to keep schools open but hefty falls in the share prices of pubs, brewers, hotel groups and travel companies reflects the belief that consumer spending will be affected by new measures to enforce social distancing.


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