Markets wobble on second-wave fears
Speculation about a new lockdown in Britain saw the FTSE 100 slide 3.4% on Monday, its worst one-day loss since June.
![Larry Kudlow, Director of the White House National Economic Council © Samuel Corum/Getty Images](https://cdn.mos.cms.futurecdn.net/Nk83khE2e3PUoaMFMWUP5Q-415-80.jpg)
The eyes of global investors were trained on London this week, but not for good reasons. Speculation about a new lockdown in Britain saw the FTSE 100 slide 3.4% on Monday, its worst one-day loss since June. The drop wiped £52bn off the value of British companies. Concern about a second wave of the pandemic in Spain and France also hit European bourses, with Germany’s Dax falling 4.6% on Monday. The FTSE remained volatile the following day but finished higher as Boris Johnson announced milder measures than many had feared.
Markets were already feeling woozy before this week’s new pandemic restrictions, says Rupert Thompson of wealth manager Kingswood. Global equities ended last week down 4.5% from their early September highs. “Central banks have now spent most of their ammunition,” but politicians are reluctant to provide further fiscal stimulus – in the UK, debate continues about extending furlough schemes beyond October. This week’s turmoil was a reminder that Covid-19 can still rattle investors.
And deservedly so – the new restrictions carry a significant economic cost, says Paul Dales of Capital Economics. We forecast that if this week’s new measures continue for several months then the recovery will be delayed, with the British economy unable to regain “its pre-crisis level until the second half of 2022”. If a two-week “circuit-breaking” lockdown is brought in at some point then GDP will take an immediate 5% hit. That would push back a full recovery until 2023, a year later than if there are no more restrictions.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It’s Britain’s fault!
For Wall Street traders, Monday brought back nasty memories of the crashes in March, say Ben Eisen and Anna Isaac in The Wall Street Journal. A 500-point fall in the Dow Jones index was accompanied by declines in oil and gold prices, a cross-asset washout that sparked “anxiety” about “further turbulence” to come.
Larry Kudlow, Donald Trump’s economic adviser, pointed the finger at Britain, telling a reporter that the market turmoil was “coming out of London” because of “worries that Britain might shut down”. But the US has its own headaches (including the upcoming election) and September is often the start of a “treacherous season”for markets, says Randall Forsyth in Barron’s. From Black Wednesday to Lehman Brothers going bankrupt, the month has a nasty habit of serving up the end-of-summer blues.
Long-suffering British investors have become accustomed to market whiplash. The FTSE All-Share has been “an absolute hound” in recent years, as Russ Mould of AJ Bell notes. Since the Brexit vote in 2016 it has underperformed all other major investment regions on a total returns basis. Even Latin America – where Brazilian turmoil has mingled with an Argentine debt default – has done better. The crucial problem is the FTSE’s heavy exposure to out-of-favour energy and finance stocks. That makes the market a value play by default. British shares are unlikely to shine until the world economy manages to stage a “strong, inflationary recovery”.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Revolut finally bags a UK banking licence – what's next for the fintech?
Revolut has finally been granted a UK banking licence following three years of negotiations with the regulator
By Kalpana Fitzpatrick Published
-
Could Labour impose a “double death tax” of more than 50%?
Speculation is mounting that capital gains tax will be reformed in the Budget - and one option is to charge bereaved families the tax on top of inheritance tax. We explain how it could work
By Ruth Emery Published
-
What does a weak yen mean for Japanese stocks?
The Japanese yen has hit its lowest level against the US Dollar since 1986. What does it mean for its stock market?
By Alex Rankine Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published