FTSE 100 gains cool ahead of G7 coronavirus call
The FTSE 100 index has risen for a second straight session this morning, as policymakers across the world indicated they would take measures to ease the economic impact of the coronavirus outbreak.
Britain’s blue-chip index rose as much as 2.21 per cent following the open, with traders taking their cue from a largely positive showing by Asian indices overnight, and a strong open in European markets.
But the index’s gains cooled off following Prime Minister Boris Johnson’s announcement of the UK’s so-called battle plan to combat the outbreak, and the FTSE 100 had fallen back to a gain of 1.94 per cent just before midday.
Read more: Coronavirus: Boris Johnson to outline UK ‘battle plan’ to combat Covid-19 outbreak
All but one of the index’s constituents, Hikma Pharmaceuticals, made gains in morning trading.
British Airways owner IAG which, alongside other airline and travel stocks, has been hit hard by the virus, rose as much as 7.18 per cent.
Other significant FTSE 100 risers including housebuilders Persimmon and Taylor Wimpey, which each added over four per cent.
The smaller, domestically-focused FTSE 250 also made gains of as much as 2.61 per cent in morning trading.
Gains across European indices
Japan’s Nikkei 225 ended Tuesday 1.22 per cent down and Hong Kong’s Hang Seng index lost 0.03 per cent, but China’s Shanghai composite made gains of 0.74 per cent respectively.
MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.7 per cent, marking the second straight day of rises.
Germany’s DAX index climbed following the open, and was sitting 2.10 per cent up by late morning, while France’s CAC 40 added 1.77 per cent.
“Following a thoroughly mixed Monday, the European indices shared in the Dow’s optimism, without getting quite as excited,” said Spreadex analyst Connor Campbell. “After all, any enthusiasm will have been tempered by the WHO warning the world is in ‘uncharted territory’.
“The danger, of course, is that if the world’s financial bigwigs fail to announce a coherent, co-ordinated plan of attack … these gains could unravel double-quick.”
Traders look to G7 coronavirus call
The recovery comes ahead of a conference call by G7 finance ministers and central bank heads later today, which is expected to address the coronavirus outbreak.
The decision to hold the call, which will take place at noon UK time, came after the European Central Bank yesterday signalled a readiness to deal with the economic threat posed by the Covid-19 epidemic.
However it has been reported that the G7 will not call for concrete fiscal or monetary measures to be taken at this stage, and that the group will instead pledge to work together to mitigate the outbreak’s economic impact.
The IMF and World Bank also said yesterday that they were prepared to help member states combat the outbreak, including through emergency funding.
“This is a tug of war between hope and fear. Central banks are giving hopes with their potential stimulus but we haven’t seen any firepower yet,” said Vasu Menon, senior investment strategist at OCBC Bank Wealth Management.
“The question is what they will do? Monetary policy is already very loose and interest rates are very low,” he said.
UK outlines emergency measures
The British government outlined its action plan for the Covid-19 epidemic today, warning that up to a fifth of the workforce could be off work during peak weeks.
Downing Street has warned that it is “more likely than not that the UK will be significantly affected” by the epidemic.
Prime Minister Boris Johnson outlined measures that will be deployed once the coronavirus outbreak is judged to be at its peak, including school closures, encouraging home working, and discouraging people from using public transport.
Carney warns of ‘economic shock’
Outgoing Bank of England governor Mark Carney warned today that the economic shock from the coronavirus outbreak “could prove large”, but said it would “ultimately prove temporary”.
Carney, who will be replaced by Andrew Bailey later this month, told MPs that central banks and governments across the world are preparing a “powerful” response to the crisis.
This was likely to result in a mixture of increased spending and interest rate cuts, he said.
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“There is little doubt that central banks in developed economies will provide liquidity assistance to ensure that the financial markets continue to operate smoothly if strains start to emerge, but the case for lower interest rates is less clear-cut,” said Capital Economics analyst Vicky Redwood.
“Lower interest rates will not re-open closed factories, solve supply chain shortages or revive tourism to infected areas. Indeed, cutting interest rates to boost demand when the damage is to the supply side of the economy, other things equal, just boosts inflation,” she added.