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(Alliance News) - Stocks in London began the week on the back foot, as the deadly Covid-19 continued to spread across Europe and North America, with travel stocks among the worst hit.
Stocks plummeted in early dealings Monday despite the US Federal Reserve on Sunday announcing emergency measures to shore up confidence and keep the financial sector running, including slashing the key US interest rate to virtually zero.
The Fed made its second emergency rate cut in less than two weeks, lowering the benchmark borrowing rate to a range of 0.00%-0.25%, where it was during the 2008 global financial crisis, and pledged to keep it there "until it is confident that the economy has weathered recent events".
Fed Chair Jerome Powell warned on Sunday that the US economy is likely to show the impact of the new coronavirus pandemic in the April-June period, with business and manufacturing affected.
Economic activity in the second quarter will be "weak"; however, the chance of recession this year will depend on how soon the pandemic impact can be contained, Powell said in a press conference following the rollout of drastic emergency measures.
Powell said the Fed does not believe negative interest rates will be appropriate, but said fiscal measures by the government are "critical" to respond to the economic damage.
"However, these measures have failed to calm to the markets and once again we have started the week in a major turmoil," Avatrade Chief Market Analyst Naeem Aslam said.
London Capital Group's Jasper Lawler added: "Central banks led by the US shot off a bazooka of lower interest rates and quantitative easing but it has missed target. Markets are back into freefall. Friday's gains have evaporated and shares are headed deeper into bear market territory."
Lawler continued: "There's an understanding in markets that a recession is almost guaranteed. Authorities throwing money at it helps but cannot stop it."
The FTSE 100 index was down 409.56 points, or 7.6%, at 5,568.78 early Monday.
The mid-cap FTSE 250 index was down 1,457.45 points, or 9.4%, at 14,104.77. The AIM All-Share index was down 6.9% at 690.02.
The Cboe UK 100 index was down 6.8% at 8,405.57. The Cboe 250 was down 5.4% at 12,851.34, and the Cboe Small Companies down 1.1% at 9,695.32.
In the US on Friday, Wall Street had ended sharply higher, with the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 all adding more than 9%. It was a tough week for Wall Street, despite the strong gains on Friday, with the DJIA losing 10%, the S&P 500 8.8% and the Nasdaq Composite 8.2%.
The three major indices in the US are all pointed to open at least 4.5% lower on Monday.
Sterling was quoted at USD1.2362 early Monday, lower than USD1.2392 at the London equities close on Friday.
In a red-drenched FTSE 100, International Consolidated Airlines and easyJet were among the worst performers, down 25% and 28%, respectively.
IAG said it is implementing further initiatives - following a raft of route suspensions - in order to combat the "challenging market environment.
The British Airways-parent said its first quarter capacity, or available seat kilometres, is expected to fall 7.5%. In April and May, IAG will reduce its capacity by about 75% compared to the year before.
In an attempt to cut operating expenses further, IAG will halt non-essential and non-cyber related IT spend, freeze recruitment and discretionary spending, implement voluntary leave options, temporarily suspend employment contracts, and reduce working hours.
easyJet said it has undertaken "significant" cancellations, which will result in the grounding of the majority of its fleet.
"European aviation faces a precarious future and there is no guarantee that the European airlines, along with all the benefits it brings for people, the economy and business, will survive what could be a long-term travel freeze and the risks of a slow recovery," the budget airline said.
Anglo-German travel agency TUI was 35% lower, the worst performer on the blue-chip index, after it said it is suspending the "majority" of its operations over coronavirus fears, and made a request for state aid.
TUI, which employs 70,000 people worldwide, said the move would affect its "package travel, cruises and hotel operations".
Hannover-based TUI has a presence in over 100 countries and operates a host of airlines, cruise ships and hundreds of hotels.
The firm was taking "substantial cost measures" to mitigate the effect on its earnings, adding that it would apply for state aid guarantees "to support the business until normal operations are resumed".
TUI said it was withdrawing its profit forecast for the current financial year.
Cruise company Carnival was 13% lower after a further four of its North American cruise line brands have voluntarily suspended operations for a month.
This follows the decision made by Carnival last week to voluntarily pause its global operations of the Princess Cruises division.
Gambling firm Flutter Entertainment was down 20%. It said the ban on large sports events will lop about GBP90 million to GBP110 million from Ebitda.
"This estimate assumes that our UK and Irish shops remain open and that scheduled UK, Irish and Australian horse racing fixtures continue to run, albeit behind closed doors. Should horse racing be cancelled in the three regions and our UK/Irish shops be closed, we estimate that this would incrementally reduce Group Ebitda by approximately GBP30 million per month," Flutter added.
The company noted its "strong" balance sheet and said it will continue to explore ways to mitigate earnings drop caused by the suspensions.
Associated British Foods was down 10% after discount clothing retailer Primark finally succumbed to disruption caused by the Covid-19 outbreak, with store closures set to cost the high-street chain GBP190 million in sales over the next month.
Stores in France, Spain, Austria and Italy, where governments have imposed lockdowns, have been forced into temporary closure.
"These stores currently generate 30% of Primark's sales. From the date of this announcement, we had expected sales of GBP190 million from these stores over the next four weeks," AB Foods said.
In the UK, which represents 41% of Primark sales, like-for-likes have declined over the last two weeks amid reduced footfall.
In mainland Europe, the CAC 40 in Paris was down 6.3% while the DAX 30 in Frankfurt was 6.2% lower early Monday.
The euro traded at USD1.1216 early Monday, up from than USD1.1075 late Friday. Against the yen, the dollar was quoted at JPY106.25, down from JPY107.22.
In Asia on Monday, the Japanese Nikkei 225 index ended down 2.5%. In China, the Shanghai Composite closed down 4.4%, while the Hang Seng index in Hong Kong ended down 4.2%.
The Bank of Japan on Monday followed the Fed, unveiling a series of emergency monetary policy measures to shore up the world's third-largest economy.
In a meeting brought forward by two days, the BoJ said it would double its annual capacity to purchase exchange-traded funds and Japan real estate investment funds, the latest global central bank to take emergency action.
Meanwhile, Australia's Reserve Bank on Monday said it will it will begin buying bonds to help the its economy which has been hit by the spread of the Covid-19 virus.
"In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system," Governor Philip Lowe said. He added that the central bank will also regularly conduct one-month and three-month repo operations in a bid to "to provide liquidity to Australian financial markets".
In worrying news out of China, the country's industrial production has contracted for the first time in three decades as the coronavirus epidemic wreaked havoc on the economy, official data showed Monday. Industrial production for January and February shrank 14% in the first two months of the year, markedly worse than a Bloomberg poll of analysts, which forecasted a 3% drop on-year.
Retail sales plummeted 21% from a year ago during the same period – its worst showing in decades as well – after rising 8% in 2019. Analysts had expected a 4% fall.
Swissquote analyst Ipek Ozkardeskaya commented: "The fact that lower Chinese production will have a severe implication on most international companies' operations is now leading to another round of downside valuation in market prices.
"And of course, the spread of the virus to other parts of the world continues paralysing economies globally and the negative implications will go far beyond a Chinese-led slowdown."
In commodities, gold was quoted at USD1,540.10 an ounce early Monday, almost USD200 higher than USD1,356.80 late Friday.
Ozkardeskaya said: "Though such violent swings are disturbing for a safe haven asset, chaotic market conditions give little alternative of rescue to investors."
Brent oil was priced at USD31.50 a barrel, down from USD33.07.
By Paul McGowan; paulmcgowan@alliancenews.com
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