Global stock markets have gone back into reverse and the pound has hit its lowest level against the dollar in 35 years as investors flee ever deepening gloom over the coronavirus crisis.
The FTSE 100 plunged by 5.3% in morning trading on Wednesday – wiping out strong gains seen the day before – despite “unprecedented” measures announced by chancellor Rishi Sunak to help businesses and households weather the storm.
Markets had been lifted on Tuesday by the promise of stimulus measures, with New York’s Dow Jones climbing more than 5% after President Donald Trump unveiled plans for an $850bn stimulus package, including help for airlines.
It took less than 24 hours for the enthusiasm to fade, with Asian markets falling again overnight.
Wall Street followed Europe lower with the Dow dropping almost 6%, taking values below the 20,000 point mark.
Analysts from London Capital Group said that the “magnitude of the pandemic is outweighing stimulus hopes”.
In response to Mr Sunak’s announcement on Tuesday, they said: “We just have our doubts about whether any government can execute complicated measures in time when the support is needed as soon as possible.”
GAIN Capital Group added in a note: “The fact that the FTSE has failed to hold onto any of the gains quite simply suggests that this is not enough.
“There needs to be a coordinate global response, which up to now hasn’t happened. As a result, the markets are vulnerable to further fallout.”
Brent crude oil was trading at a 16-year low of $27 dollars a barrel at one stage.
The pound was also having a difficult time – down 1.47% against the euro and 1.73% against the US dollar, meaning that a pound buys €1.07 and $1.18.
Neil Wilson at markets.com said the decline in sterling was “one of the steepest in memory”, leaving it at its weakest level since 1985, excluding a brief dive in October 2016.
He added: “This is the worst sustained period of sterling selling that I can recall, and it points to a severe dollar liquidity crunch that central banks have yet to get a grip on. There is a synchronised rush for dollars that has caught most companies, governments and traders on the hop. Dollar funding issues have been far more serious than estimated prior to this crisis.”
In Europe, Italy’s MIB was down 2.6%, the French CAC 40 down almost 5.5% and Germany’s DAX down 5.3% on Wednesday morning.
AJ Bell investment director Russ Mould said: “Ultimately no amount of cash or measures to mitigate the economic impact of the crash can tell investors what they want to know right now, which is when daily life will return to normal (or even a new normal).
“Perhaps some comfort can be taken from the fact that shares are seeing slightly smaller declines than have been witnessed earlier in this sell-off with a reduction in volatility probably the first step towards some measure of stabilisation.”
In other developments:
- Supermarkets were among the stocks gaining on Wednesday morning on news of the chancellor’s holiday on business rates. Sainsbury’s was up 8.7%, Marks and Spencer by 16% and Morrisons climbed by 6%
- But Tesco was down 1.4% and Ocado fell by 0.84%
- Airlines continue to suffer – British Airways owner IAG is down 8.5%, Ryanair by 5% and easyJet by almost 12.7%. Aerospace and defence supplier Meggitt fell by more than 20%
- Leisure-related stocks declined, after the government advised people to avoid large gatherings and many sporting events were cancelled, with JD Sports down 4.2%
COVID-19, the illness caused by the coronavirus, has infected almost 200,000 people worldwide, killing almost 8,000. Most of the cases have been in China – where the virus originated but where it is now almost under control – as well as Italy, Iran and Spain.