LONDON MARKET MIDDAY: Stocks Dive On Tier 4 Restrictions, Freight Ban

(Alliance News) - Stock prices in Europe plunged on Monday in a chaotic start to a holiday-shortened week as fears over a new coronavirus strain dominated trade.

The pound also tumbled as countries across Europe moved to block travellers from the UK due to the new virus variant spreading in southern England.

The FTSE 100 index was down 143.76 points, or 2.2%, at 6,385.42 midday Monday. The mid-cap FTSE 250 index was down 532.86 points, or 2.7%, at 19,583.43. The AIM All-Share index was down 1.5% at 1,078.20.

The Cboe UK 100 index was down 2.1% at 606.08. The Cboe 250 was down 3.0% at 22,346.44, and the Cboe Small Companies down 2.7% at 14,743.37.

In mainland Europe, the CAC 40 in Paris was down 3.1% while the DAX 30 in Frankfurt tumbled 3.3% on Monday.

Sterling was quoted at USD1.3270 at midday, sliding by around 1.6% from USD1.3482 at the London equities close on Friday - and having traded above the USD1.36 mark last week. The drop in the UK currency provided some cushion for the internationally exposed FTSE 100.

"It is not a good start to the week for the UK with a nasty cocktail of transport links with the rest of Europe being severed and another Brexit deadline missed. The virus situation, border closures, and resulting in ugly chaos will weigh on sterling this week," said Stephen Innes at Axi.

The UK has been cut off from large parts of Europe – and some other areas of the world – as authorities imposed bans on passengers because of concern about a more infectious mutant coronavirus.

Countries reacted after UK Prime Minister Boris Johnson announced on Saturday that a new variant was up to 70% more transmissible than the original strain as he put London and parts of the South East and East of England into a two-week Christmas lockdown, with nearly 18 million people in a new Tier 4.

UK Health Secretary Matt Hancock admitted the new variant coronavirus was "out of control" and said the new restrictions may have to remain in place for months.

The most dramatic intervention came from France, which put in place a ban on hauliers crossing the English Channel with their cargo. However, French transport minister Jean-Baptiste Djebbari said a protocol would be adopted at a EU-wide level "to ensure that movement from the UK can resume".

The bad news for the UK economy was enough to offset any optimism over a USD900 billion US stimulus deal, which markets have been awaiting for months.

"While the US stimulus deal was thought to be a positive aspect, I reckon it is insufficient to alleviate the UK situation and immediate negative sentiments," said Axi's Innes.

The US spending package includes aid for vaccine distribution and logistics, extra jobless benefits of USD300 per week, and a new round of USD600 stimulus checks – half the amount provided in checks distributed in March under the CARES Act.

"We've agreed to a package of nearly USD900 billion. It is packed with targeted policies to help struggling Americans who have already waited too long," Republican Senate majority leader Mitch McConnell said in a statement.

Congress was working under a deadline of midnight Sunday, needing to reach consensus to avoid a government shutdown. Months of partisan debate and finger-pointing, as well as last-minute negotiations, culminated in a deal lawmakers said they hoped to formally approve on Monday.

Wall Street is headed for a lower open on Monday, despite the stimulus agreement. The Dow Jones is pointed down 2.1%, the S&P 500 down 2.4% and the Nasdaq Composite down 1.5%.

Travel and retail stocks were some of the worst performers in London on Monday after the government's weekend imposition of Tier 4 restrictions in much of the south east of England.

British Airways-owner International Consolidated Airlines was down 9.7% at midday and jet engine-maker Rolls-Royce down 9.0%.

Shopping centre owner Hammerson slumped 13% in the FTSE 250, while budget airline easyJet tumbled 10% and Sports Direct and House of Fraser owner Frasers Group tumbled 10%.

Frasers Group on Monday pulled guidance for its current financial year due to the closure of non-essential retail in Tier 4 areas.

The sports equipment and clothing retailer said the new restrictions enacted during the peak trading period, combined with the high likelihood of further lockdowns nationwide over the coming months, mean it can no longer commit to its guidance of a 20% to 30% improvement in underlying earnings before interest, tax, depreciation, and amortization for its financial year ending April 2021.

Oil majors slid as the price of Brent tumbled on demand worries. Brent oil fell to USD49.67 a barrel from USD52.16 late Friday.

BP and Royal Dutch Shell 'A' and 'B' shares were down 5.3%, 4.7% and 5.4% respectively.

Alongside a slump in oil prices, Shell on Monday said it expects charges of up to USD4.5 billion due to impairments, asset restructuring and onerous contracts in the fourth quarter.

For Integrated Gas, production is expected to be between 900,000 and 940,000 barrels of oil equivalent per day in the fourth quarter. LNG liquefaction volumes are expected to be between 8.0 and 8.6 million tonnes.

In Upstream, production is expected to be between 2.3 million and 2.4 million barrels of oil equivalent per day. The unit is expected to post an adjusted loss in the current price environment, the firm said.

Post-tax charges, in total, between USD3.5 billion to USD4.5 billion in relation to impairments, asset restructuring and onerous contracts are expected in the fourth quarter.

Russ Mould at AJ Bell commented: "Amid the latest signs that containing the pandemic could be an increasingly complicated endeavour, the prospects for a recovery in the aviation sector, in particular, and thus demand for jet fuel look highly uncertain."

At the top of the FTSE 100 was Ocado, up 4.4%, and Just Eat Takeaway.com, rising 2.9%. The two stocks stand to benefit from tighter virus rules, given demand will likely increase for their food delivery services.

Gold was quoted at USD1,880.40 an ounce at midday, lower than USD1,885.75 on Friday as the dollar strengthened amid Monday's risk-off mood.

The buck also gained against the euro and yen. The euro traded at USD1.2176 on Monday, down from USD1.2235 late Friday and against the yen, the dollar was quoted at JPY103.67, up from JPY103.40.

The economic events calendar on Monday has eurozone consumer confidence at 1500 GMT.

By Lucy Heming; lucyheming@alliancenews.com

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