The export-heavy FTSE 100 was today rocked by a plunge in Asian exports. Data showed Japan’s April exports had plunged the most since the global financial crisis with the coronavirus pandemic slamming demand for cars and industrial materials. Earlier this week Chancellor Rishi Sunak said the UK will be hit by a severe recession “the likes of which the nation has never seen before”.
The mid-cap FTSE 250 shed 0.4 percent in a stop to the market’s a four-day winning streak withReal estate, financials and consumer discretionary stocks were among the most hit during morning trading.
However, EasyJet Plc jumped 4.6 percent after it said it would restart a small number of flights on June 15, becoming the latest airline to plan for the return of European travel.
Richard Dunbar, head of multi-asset research at Aberdeen Standard Investments: “There’s a two-way pull in the market between the impact of the monetary stimulus and, at the same time, evidence of a catastrophic slowdown in the global economy.”
The easing of coronavirus-induced shutdowns has seen the FTSE 100 recover slightly.
It is now only about 21 percent below its January record high.
FTSE 100 LIVE: Asia exports have been hit by a huge blow
The dip in London’s stock market comes as IHS Markit, which tracks market and index activity, warned the eurozone faces a second quarter-GDP that is “still likely to fall at an unprecedented rate” with “recovery to pre-COVID GDP levels not expected until 2024”.
However, his forecast for the UK was slightly more optimistic.
Chris Williamson, chief business economist at IHS Markit, said: “The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April.
“Second-quarter GDP is still likely to fall at an unprecedented rate.”
On Twitter he added: “Eurozone #PMI rises in May as COVID-19 lockdowns ease, and should rise further in coming months, but output is still falling and longer term outlook remains gloomy.
“Recovery to pre-COVID GDP levels not expected until 2024.”
In regard to the UK, Mr Williamson, tweeted: “The UK flash #PMI signalled another steep month-on-month contraction of business activity in May, but the fall was less than seen in April.
“June should hopefully be better as lockdown restrictions ease.”
However, Andrew Wishart, an economist with Capital Economics reaffirmed his forecast of a 20 percent slump in the economy between April and June.
He said: “Much more importantly, we expect the pace of the recovery to be sluggish.”
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The Bank of England is considering introducing negative interest rates
10.20am update: The pound makes slight gains against US dollar and euro
The pound at 10am was trading at £1-$ 1.2221 dollars compared to £1-$ .2255 dollars at the previous close.
The euro at 10am was trading at 0.8978 pounds compared to 0.8959 pounds at the previous close.
Michael Hewson, chief market analyst at CMC Markets UK, said that before hypothesising about the risks of deflation the Ban k of England needed to consider that prices are already going up.
He said: “Maybe our esteemed central bankers might do well to get out of the ivory towers of Threadneedle Street
“Prices in the shops are already starting to rise, as anyone who has been in a supermarket recently will tell you.
9.50am update: FTSE drops again
The FTSE-100 index at 9.45am dropped 49.14 to 6018.02.
8.45am update: FTSE suffers early losses on London Stock Exchange
The FTSE index was down 39.51 at 6027.65 at 8:45am.
8.00am update: Trading begins on the London Stock Exchange
The FTSE 100 index has opened at 6067.16.
7.45am update: Economist issues warning over negative interest rates
Kit Juckes, a macro strategist at French multinational investment bank Société Général, has warned the Bank of England against introducing negative interest rates.
He said: “The chancellor has dramatically increased government borrowing and the Bank of England is buying the economy time by mopping most of it up.
“How on earth does it make sense to even consider adding negative rates to the mix?”
7.20am update: Bank of England considering negative interest rates
The Bank of England has not ruled out introducing negative interest rates to stimulate the faltering UK economy.
Governor Andrew Bailey confirmed the Bank of England is considering all options to counter the effects of the looming recession.
Mr Bailey said: “We do not rule things out as a matter of principle. That would be a foolish thing to do.
“But that doesn’t mean we rule things in either.”
In March the Bank of England cut the base rate of interest to a record low of 0.1 percent.
A negative interest rate would mean banks would have to pay to keep their excess reserves and in turn encourage lending.
7.00am update: Turkey central bank cuts policy rate
Turkey’s central bank is expected to cut its policy rate by 50 basis points to 8.25% this week, easing policy for a ninth straight time.
The bank has cut its policy rate by 1,525 basis points since July last year in a bid to pull the economy out of a recession and counter the downturn caused by the coronavirus outbreak.
5.50am update: Asia shares temper rally as China policy meeting awaits
Asian shares stepped back slightly and US stock futures fell on Thursday as lingering caution about the long-term impact of the coronavirus outbreak offset some of this week’s enthusiasm over re-opening of economies.
Investors were also looking ahead to a key policy gathering in China that may yield more economic stimulus, while recent data around the world underscored that a sustainable recovery is several months away.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up just 0.04 percent, having rallied around 3% so far this week. S&P 500 e-mini stock futures fell 0.66 percent.
Broad risk appetite has been checked somewhat by escalating tensions between the United States and China due to President Donald Trump’s criticism of Beijing’s handling of the coronavirus outbreak.
Australian shares , which have been hampered by concerns about a trade row with China, pulled back slightly from a two-month high.
(Additional reporting by Rachel Russell and Luke Hawker)