LONDON, March 24 ― Britain's FTSE 100 fell to its weakest close since October 2011 yesterday, as economists predicted a contraction of the global economy and a raft of UK firms warned of earnings hits amid the spread of the coronavirus.
The blue-chip index fell 3.8 per cent, sinking back into the red after a two-day bounce that had been driven by extraordinary stimulus unveiled by governments and central banks last week.
The index erased all of its losses at one point yesterday after the US Federal Reserve rolled out measures, including backing purchases of corporate bonds and making direct loans to companies.
But those gains evaporated as investors continued to fret over the severity and the prolonged impact of the outbreak.
“While central bank and fiscal action is absolutely crucial, the key requirement to stop the market rout is investors believing the virus is behind us,” said Seema Shah, chief strategist at Principal Global Investors.
“Until that happens, central bank and fiscal action will quickly become out-dated, requiring policymakers to repeatedly re-visit and multiply their stimulus plans.”
British Prime Minister Boris Johnson warned over the weekend the government may have to impose curfews and travel restrictions, another potential blow for businesses.
UK clothing and homewares retailer Next said it would close its stores from 1800 GMT yesterday until further notice. Its shares closed down 11 per cent.
Shares in Associated British Foods fell 7.5 per cent after it said Primark was closing all of its stores around the world, a loss of roughly £650 million (RM3.34 billion) worth of net sales a month.
Publisher Pearson dropped 9 per cent as it said it would halt share buybacks and forecast a 25 million to £35 million hit to operating profit this year due to the closure of many of its academic testing centres.
Airlines including easyJet and IAG-owned British Airways plunged again, with no announcement on the outcome of discussions over support packages for their industry.
Investors took little comfort from a fresh round of stimulus announced of Friday that included the British government paying a massive share of private sector wage bills to discourage bosses from firing staff. That came on top of aggressive interest rate cuts from the Bank of England and billions of pounds pledged as fiscal stimulus.
The FTSE 100 is down 35 per cent from its peak in January and on course for its worst monthly performance since 1987, while the FTSE MID 250 index of midcap stocks is down more than 40 per cent from its all-time high.
Goldman Sachs predicted global real gross domestic product would contract by about 1 per cent in 2020, a sharper economic decline than in the year following the 2008 global financial crisis. It saw advanced economies contracting “very sharply” in the second quarter, including a 24 per cent drop in the United States.
In one bright spot, hand sanitiser-maker Byotrol surged 33.8 per cent as it saw a surge in demand for its infection prevention products amid the coronavirus health crisis. ― Reuters
