Airline stocks sink as FTSE 100 falls on fears of second wave
The FTSE 100 fell back into negative territory this afternoon after early optimism about an easing of the UK lockdown appeared to evaporate.
London’s stock market was up 0.85 per cent as it flirted with the 6,000 points marker earlier today. But traders’ enthusiasm quickly dwindled as European stocks also dropped into the red.
The FTSE 100 had fallen 0.26 per cent to 5,921 shortly before 4pm. France’s Cac also slipped back from gains to record a drop of 1.5 per cent while Germany’s Dax dipped 0.9 per cent.
The Prime Minister’s announcement of a multi-stage easing of the UK lockdown initially appeared to spur the FTSE 100 higher.
Johnson has urged millions of workers to return to work today if they cannot work from home in what the CBI described as the “first glimmer of light for our faltering economy”.
Brits can spend unlimited time outdoors from Wednesday, and visit beauty spots across the country.
Meanwhile, shops will not reopen until 1 June, with pubs expected to be forced to wait even longer.
Primary schools in England will partially reopen from 1 June but secondary schools are likely to remain closed until September.
However, Johnson’s announcement drew criticism from political rivals, who accused the PM of sowing confusion.
Labour leader Keir Starmer said Johnson’s speech “raises more questions than it answers”.
Airline stocks in freefall
The UK’s aviation industry has been ravaged by the coronavirus, and Johnson’s speech did little to calm nerves.
The Prime Minister said foreign visitors to the UK will face a 14-day quarantine period as the country looks to halt a fresh wave of infections arriving from abroad.
Heathrow Airport warned the move would put people off travelling and “effectively close borders temporarily”.
British Airways owner International Airlines Group (IAG) said the new quarantine measures could delay its target to restart flights by July.
Shares in IAG were down almost 3.5 per cent in afternoon trading, while Easyjet was among the biggest FTSE fallers after dropping more than eight per cent.
Ryanair fell 4.4 per cent following the announcement, while budget carrier Wizz Air was also down just over one per cent.
FTSE 100 rally fades as critics slam Johnson speech
Critics slammed Johnson’s announcement as vague and difficult for employers and employees to interpret.
“Boris Johnson unveiled an unclear, and arguably irresponsible, set of measures on Sunday evening,” Spreadex financial analyst Connor Campbell said.
He added the PM was “pushing the country’s most economically vulnerable back to work despite the government’s own made-up warning system sitting at a 4 out of 5”.
Johnson’s advice came before the Office for National Statistics today revealed construction workers are among the most vulnerable to coronavirus.
Yet Johnson said employees are “actively encouraged” to return to work if they cannot work from home. That is largely meant to apply to manufacturing and construction workers.
“This while allowing people to sit two metres apart from strangers in a park without giving any word on when they can see loved ones in different households,” he added.
Meanwhile, Activ Trades analyst Pierre Veyret said traders would be careful this week due to the risk of a second wave of infections as lockdowns ease.
“Investors are likely to stay cautious in the days and weeks to come, with the fear of a second wave ever present,” he said. “In addition, a lot of the bullish drivers are already priced into markets. Some traders [are] wondering if there is still room for an extended rally this week.”
David Madden of CMC Markets said the easing of lockdowns had turned out to be a “double-edged sword” as initial optimism about reopening the economy was usurped by fears of a second wave.
“Reports from South Korea and Germany show that new cases have jumped amid the easing of restrictions, and that’s why traders are dumping stocks today,” he said.
“When it comes to reopening the economy, there is a fear in the markets that it might be a case of one step forward and two steps backwards.”
Wall Street wobbles on second wave worries
US stocks were mixed this afternoon as investors tested the waters amid the reopening of economies in states across the country.
The Dow Jones and S&P 500 were down 0.8 per cent and 0.5 per cent respectively in New York trading, reflecting concerns about a second wave of infections.
But the tech-heavy Nasdaq ticked up marginally as it continued to outperform its peers during the pandemic.
However, CMC Markets’ David Madden said both the Dow Jones and S&P 500 had made significant gains since March, meaning today’s negative moves were “tiny by comparison”.
Stocks ‘face weeks of pressure’
Swissquote Bank senior analyst Ipek Ozkardeskaya said the FTSE 100 was rising on investor optimism the UK lockdown is easing.
“The UK’s service-heavy economy will remain under a certain pressure for a couple of more weeks,” she said. “But again, the worst recession in centuries is already priced in the market and won’t cause additional collateral damage.
“The main risk to business reopening is a pickup in new cases. Hence, investors will be carefully watching if the contagion curve remains on a descending path. An uptick will likely cause a second wave of halt in activities and hammer the market sentiment. For now, hope dominates.”
Construction sector to get boost?
While UK stocks suffered a wider dip, some parts of the economy could be eyeing a recovery.
Johnson urged people to return to work where they cannot work from home, meaning sectors such as construction and manufacturing are set to pick up trading again.
Shares in Halfords also surged more than 20 per cent to levels not seen since last September.
It came after the prime minister encouraged people to return to work as a way of avoiding public transport.
“It is worth remembering that Halfords issued a positive update last week, as the group said that it expects full year pre-tax profit to be at the upper end of its forecast,” said Madded.
“The firm was already in a relatively strong position before the update from the British prime minister, and now it appears it will be in an even stronger position.”