FTSE 100 closes lower over growing fears around COVID-19 variants impeding economic growth

There are reports that the Chancellor of the Exchequer may delay the budget until next year

Burberry Group PLC -
  • European markets fall 
  • US Markets slump midday
  • Oil prices record third consecutive session of losses

5pm: FTSE 100 closes lower

The FTSE 100 index ended the week in the red as mounting concerns over COVID-19 variants impacting reopening dampened earlier confidence.

The UK's premier share index finished the day down 3.93, or 0.06%, to 7,008.09, shedding 48.5 points or 0.69% from its midday high. While, the FTSE 250 experienced a larger decline slipping 34.24 (0.15%) by end of the day Friday.

As investors in both the US and Europe begin bracing for another round of potential COVID-19 disruptions, markets are beginning to follow suit.

 Chris Beauchamp, Chief Market Analyst at IG commented:

“Hopes of a new in-session record high for the Dow have been dashed, with the index moving almost straight down from the opening print. Indices generally are in retreat, after a morning in which European markets had tried to hold relatively steady. But as the day has gone on the trickle of selling has turned into a flood, and points towards a tough end to the week. Bullish momentum in US markets has finally run out, having already dissipated earlier in the week for European stocks, as the usual weaker second-half of July takes over from the often-bullish first half.”  

3:42pm Deep declines continue 

Everyone's in the red again, with the Wall Street indices unable to maintain their initial upward momentum before they slipped on the leaking pessimism from Europe.  

The FTSE 100 and US benchmarks are all around 0.2% to 0.3% lower, with the London index down 11 points at just over 7000.

“European stocks have undergone another week of choppiness without actually going anywhere, finishing the week on the back foot in the process,” says market analyst Michael Hewson at CMC, noting that Germany's DAX and the European Stoxx 600 index posted new record highs but over the last four weeks have made little progress and look set to finish the week firmly in the red.

“Today’s price action has seen the FTSE100 drop below 7,000 this afternoon predominantly as a result of weakness in the basic resources sector and weaker metals prices, with Glencore, Rio Tinto and Anglo American all falling back.

“The sector wasn’t helped by a disappointing production report from Rio Tinto which suggested the miner would struggle to hit its iron ore guidance after a tough quarter, hampered by labour shortages and bad weather.”

Looking to Monday's 'freedom day', Hewson said the “new vague rules, or guidance around mask wearing, and rising infection rates mean that next week’s reopening isn’t likely to change that much in terms of day-to-day living, except by shifting the burden of responsibility from government deciding how and where to work with the virus, and on to the private sector, and the private individual.”

A deeper look at the companies reporting in the UK and US next week and the big economic points to watch, our week ahead report is out: 'Royal Mail, easyJet, Unilever and Vodafone key names in coming week'. 

Over in the US, casting a pall on recent bullishness is news that cases of Covid-19 are now rising in every state.

As analyst Marshall Gittler at BDSwiss says in the week ahead report, “just because the market has for now forgotten about the virus doesn’t mean the virus has forgotten about us. You may not realize it, but globally we’ve had more new cases of the virus so far this year than in all of last year, and this year is barely half over.”

With the vaccine helping break the link between cases and deaths in the developed world, Gittler adds “The big problem is in the developing world, where few people have access to vaccines and even when they do, they generally aren’t the more effective vaccines. As long as the virus continues to circulate there, it will mutate and come back to bite everyone. We haven’t heard the last of this story by any means, I’m afraid.”

3.28pm: Into the red (box)

London's Footsie index has stumbled into the red, with banks joining the miners and the main weight around the market's neck.

Barclays (LON:BARC) is down 2.4%, NatWest Group (LON:NWG) 2.3% lower and Lloyds Banking Group (LON:LLOY).

Big story in the City this afternoon is that the Chancellor of the Exchequer may delay the budget's tax changes until next year, the Guardian reports.

This is because the Treasury may want to wait until the crucial period from September to the end of the year after the current government Covid support measures come to an end before Rishi Sunak gets his red dispatchch box out.

In crypto markets, bitcoin is paring earlier losses, just above flat at $31,934.56 over 24hrs, on reports that Bank of America approved trading of Bitcoin futures for some clients. The story comes from Coindesk, which cites anonymous sources.

“This is a big commitment for America’s second-largest bank and signals that interest in trading cryptocurrencies is here to stay. On Wall Street, if one bank sees opportunity in doing something risky, the rest will easily justify following suit,” said market analyst Edward Moya at Oanda. 

Digging deeper in the earlier US retail figures, the overshoot to consensus isn’t quite as good as it looks, says Ian Shepherdson at Pantheon Macroeconomics, because the net revision to headline sales is down 0.4%. 

"A 2.0% drop in auto sales held down the headline, but that likely says more about supply than demand; inventory is rock-bottom as a result of the chip shortage, so some would-be buyers either can’t get the car they want, or have to wait for it."

But overall the core retail numbers are strong, he says, though a few components were soft, such as housing-sensitive furniture and building materials components, in the wake of the steep drop in home sales in recent months.

The main positives were clothing (up 2.6%), department stores (+5.9%), with rises for electronics appliances (+3.3%) and restaurants and bars (+2.3%).

"This report ought to dampen some of the recent talk of fading consumers, which we’ve found quite surprising, given that households are sitting on $2.5trn of extra savings accumulated during the pandemic, while wage and salary income is being boosted by the recovery in the labor market."

Looking forward, he said, "the wild card remains the pace at which people choose to run down their accumulated savings. In the absence of any prior experience remotely like the current situation, this is impossible to forecast with confidence. But we continue to think its implausible to argue that people will choose to hold all the cash and rely solely on regular income to finance all their spending."

2.44pm: Wall Street opens higher

The main indices on Wall Street opened in positive territory on Friday after US retail sales unexpectedly rose in June.

Shortly after the opening bell, the Dow Jones Industrial Average was up 0.14% at 35,035 while the S&P 500 climbed 0.3% to 4,373 and the Nasdaq rose 0.5% to 14,615.

The positive open followed data that showed US retail sales increased 0.6% in June in contrast to the 0.4% decline predicted by analysts, although data for May was revised to show a 1.7% decline as opposed to the previous 1.3% decrease.

Excluding automotive sales, the rise was 1.3% versus the consensus for a 0.4% rise.

The increase is likely to boost optimism for a US economic recovery and that consumer activity picked up in the second quarter.

Back in London, the FTSE 100 was basically flat at 7,011 at around 2.40pm.

1.00pm: FTSE 100 flattens off

The FTSE 100 has now given up pretty much all its earlier gains to flatten off at 7012.64, two-thirds of a point above where it ended yesterday.

Perhaps it's concern about the so-called 'pingdemic' across Britain, with newspapers warning the country collapsing into "chaos" and a "pingdemic paralysis" as the NHS Covid app forces more people to self-isolate and leading to hospitals being forced to cancel operations, leaving factories on the brink of shutting and disrupting bin collections.

Elsewhere, European indices are mixed, with those for Germany and France in the red and Italy and Spain’s making very modest advances.

Wall Street is also expected to start slightly higher, with futures markets pointing towards a 0.1% rise for the Dow Jones and S&P 500, with the Nasdaq seen edging up 0.2%.

“Looking ahead, US stocks are pointing to a mildly stronger start after a mixed close in the previous session. In fact, trading across the week has been a mixed picture as investors weigh up the Fed’s assurance of loose monetary policy against high and rising inflation,” said market analyst Sophie Griffiths at Oanda.

“Attention will be firmly on US retail sales data and Michigan consumer confidence for further clues over the health of the US economy. Expectations are for another contraction in retail sales after a disappointment last month, which could weigh on sentiment.”

Shares are spiking in pre-market trading for vaccine maker Moderna Inc (NASDAQ:MRNA) following the announcement that it will be added to the S&P 500 as its Covid jab success has resulted in the shares soaring more than tenfold since the start of last year.

Also anticipated is a step up for Intel Corp (NASDAQ:INTC) as the WSJ reports that the chip designer and maker is in talks to buy semiconductor manufacturer GlobalFoundries Inc for about US$30bn.

Also making the news stateside is a survey from Reuters indicating that President Biden will reappoint current Fed boss Jerome Powell for another term, from February next year.

12.32pm: Oil slip, gold gains

Crude oil prices are extending losses on Friday, with Brent oil futures set to decline over 4% this week to around $US73.50 per barrel - though shares in Shell (LON:RDSB) and BP (LON:BP.) have mostly been higher today.

“The spectacular rally in oil over the past few months appears to be stalling as investors fret over more oil being released into the market. OPEC+ is looking increasingly likely to up output to satisfy rising demand as countries continue to reopen," says Oanda analyst Sophie Griffiths.

“Oil demand has been the key driver of oil prices over the past few months as economies reopen and OPEC+ has kept output limited. Demand is expected to increase, with OPEC predicting oil demand to rise to pre-pandemic levels next year. However, output is likely to start playing a more significant role in influencing oil’s prices. 

“Near term, rising covid cases are unnerving the oil market. A rise in fuel inventories when the US driving season is supposed to be ramping up has raised a few eyebrows, not least because the July 4th holiday usually sees fuel demand surge."

Casting her eye at metals, she noted that gold has extended its gains for the fourth week, but edging lower on Friday to snap a three-day winning run and weighing on gold miners.

“Even so,” says Griffiths, “the precious metal is still set to book gains across the week, its fourth consecutive week of gains. On the one hand, gold is finding support from rising covid cases and the flight to safety that accompanies the covid trade. However, mixed signals from the Fed mean that the precious metal has struggled to overcome the key 200-day moving average resistance this week.”

11.11am: London's gains being erased

The FTSE 100's gains are waxing and waning, with the index lately giving up much of its early progress, up 17 points at 7029.

'Value' shares are the ones staging the fightback today, says market analyst Joshua Mahony at IG.

“Heavily-hit value names are staging a fightback, following a period of underperformance. From a UK perspective, reopening plans continue to provide a major unknown element for the future,” he writes. 

“The FTSE 100 is leading the way higher in early trade today, with value names finally staging a fight-back in the wake of a destructive period for recovery stocks. Airlines and high-street names are enjoying some welcome respite after a period which has seen those sectors weighed down by fears around a surge in Covid cases.

“With UK Covid cases up to a six-month high yesterday, the government’s plans to reopen in the hope that hospitalisations fall short of max NHS capacity provide a major risk of further future restrictions.”

10.38am: Burberry and miners fall

Looking at the main FTSE movers on the downside, Burberry (LON:BRBY) has fallen 4%, with some of this reflecting worries that the departure of CEO Marco Gobbetti will lead to chief designer Riccardo Tisci following him out the door.

Addressing these concerns, finance boss Julie Brown this morning told reports that the former Givenchy design ace “remains very excited by the opportunity to continue to inspire our customers... We’re very, very confident of Riccardo’s position.”

The FTSE's tech names Just Eat Takeaway (LON:JET) and Ocado (LON:OCDO) are also down the bottom of the losers list, echoing the big tech falls on the Nasdaq overnight.

Miners are also losing ground, with Rio Tinto (LON:RIO), Anglo American (LON:AAL) and Glencore (LON:GLEN) the biggest fallers as economists spy the beginning of the end for the copper rally.

“After reaching an all-time high in May, the price of copper has since come off the boil. And we think it will fall further over the next eighteen months or so, as a combination of weaker economic growth in China and a greater availability of both ore and scrap supply tips the refined market into a surplus," says the Capital Economics commodities team.

9.45am: Footsie's happy face

London's blue chips are continuing to feel chipper, on the whole, after the Footsie bumped down to its lowest point in almost a month yesterday. 

The travel and leisure sector is leading the way, up 2%, led by a 17% spike for the most shorted stock in the FTSE 350, cinema operator Cineworld (LON:CINE), possibly on the back of a Deadline interview that came out overnight. 

Also boosting the hospitality and leisure strategy this morning is new from Downing Street that “pavement licences” for alfresco wining and dining would be extended to help pubs, bars and restaurants recover from their pandemic travails.

“UK stocks have put on their happy face this morning,” said Danni Hewson, analyst at AJ Bell, following fears over inflation returning “with a vengeance” this week.

For the market's main direction later Hewson said the US retail sales figures held the key, with “hoping for a number which is neither too hot nor too cold”.

“If the reading is a lot higher than expected then there will be concern that the world’s largest economy is overheating but if the data is much weaker then there will be fears the recovery from the pandemic is being knocked off course amid mounting infection rates linked to the Delta variant.”

Looking to next week, she says US reporting season, which got underway with the big banks in recent days, will get into full swing and be joined in earnest in the UK too – “helping to give the markets some sense of direction as it continues to navigate the twin threats of inflation and Covid-19”.

The FTSE is currently up 31 points or 0.4% at 7,042.13, while the FTSE 250 is up a similar 0.4% at 22,591.2.

8.40am: Positive start for FTSE

The FTSE 100 made a positive start to proceedings as traders largely ignored the negativity emanating from Wall Street and Asia’s main markets.

They also shrugged off Thursday’s gloom over rising cases of the Covid Delta variant, unease over the looming threat of inflation and the prospect of interest rate rises.

Heavily sold off earlier in the week, the travel stocks headed the Footsie with InterContinental Hotels Group (LON:IHG) in the unaccustomed position of sitting atop the pile with a 3.2% advance.

The influential hospitality sector team at Deutsche Bank marked IHG as one of its top picks in the sector yesterday, upgrading it to ‘buy’.

With traditional holiday destinations Ibiza, Majorca, Menorca and Formentera added to the UK’s amber list yesterday, British Airways and Iberia owner IAG (LON:IAG) travelled in IHG’s vapour trails with a 3% rise, Premier Inn owner Whitbread nudged 2.4% higher, while among the mid-caps, tour operator TUI (LON:TUI) was up 2.3%.

First-quarter results from Burberry (LON:BRBY) may have represented the day’s main scheduled news, but they were met with a collective ‘meh’ by the market. The stock was marked down nearly 1%.

On AIM, a 4.2% jump in the value of drug developer Hutchmed China (LON:HCM) cemented its position as the most valuable company on AIM after overtaking ASOS (LON:ASC) earlier this week.

With a £4.8bn market capitalisation, the firm would automatically qualify for the FTSE 100 if it was prepared to fill in the additional paperwork.

6.50 am: FTSE 100 to regain its poise 

London’s blue-chip stocks are set to make something of a recovery today after yesterday’s slump.

Spread betting quotes suggest the FTSE 100 will open 21 points higher at 7,033.

US stocks were mostly in retreat yesterday although you would not have thought so judging by the Dow Jones 30-share index’s 54 point rise to 34,987; the S&P 500, however, fell 14 points to 4,360.

In Asia this morning, Japan and Hong Kong have gone their separate ways.

Tokyo’s Nikkei 225 is off 184 points at 28,095 but Hong Kong’s Hang Seng is 155 points to the good at 28,152.

In London today, the headline acts are expected to be Burberry Group PLC (LON:BRBY) and Rio Tinto PLC (LON:RIO).

Fashion firm Burberry has some shareholder pacification to do after it was blind-sided recently by the decision of Marco Gobbetti to quit as chief executive officer at the end of 2021.

The company is reporting its fiscal first-quarter figures. In the final quarter of the previous fiscal year, the luxury fashion firm’s stores posted a 5% fall in like-for-like sales compared to the corresponding quarter of 2019, i.e. pre-pandemic.

The recovery seems to be strongest in mainland China, Korea and the US, Burberry said.

Rio Tinto, the scandal-hit mining company, will release its second-quarter production results.

This time last year, the company’s statement was all about “engaging extensively with traditional owners, including the Puutu Kunti Kurrama and Pinikura people, and indigenous leaders in the Pilbara and across Australia”.

It will be interesting to see how much lip service the company will pay to those issues one year on.

Around the markets

  • Sterling: US$1.3835, up 0.07 cents
  • Gilt: 0.668%, up 3.64 basis points
  • Gold: US$1,827.90 an ounce, down US$1.10
  • Brent crude: US$73.48 a barrel, up 1 cent
  • Bitcoin: US$31,828, up US$141

6.50am: Early Markets - Asia / Australia

Stocks in the Asia-Pacific region were mostly lower on Friday as the Bank of Japan downgraded its real GDP forecast for 2021 to 3.8% growth, as compared with the 4% growth forecast made in April.

The Japanese central bank also kept its yield curve control target at -0.1% for short-term interest rates and 0% for 10-year Japanese government bond yields.

Japan’s Nikkei 225 slipped 0.42% while South Korea’s Kospi declined 0.26%.

The Shanghai Composite in China fell 0.16% and Hong Kong’s Hang Seng index gained 0.52%

Shares in Australia dipped, with the S&P/ASX 200 trading 0.01% lower.


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