Update (11:05): The FTSE 100 has swung into the red, giving up gains at the open, as investors’ mood was soured by the OECD’s warning of the worst peacetime economic slump in 100 years as countries grapple with the impact of the coronavirus pandemic.
The UK blue-chip index fell to 6,311 points, down from a high of 6,387 at the open and 25 points, or 0.4%, lower on the day. UK ‘mid-cap’ companies on the FTSE 250 were down 0.4%.
OECD chief economist Laurence Boone cast doubt on a V-shaped recovery for the global economy from the slump caused by the Covid-19 pandemic.
‘Most people see a V-shaped recovery, but we think it’s going to stop half way,’ she said. ‘By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.’
The FTSE 250, whose ‘mid cap’ stocks outside the blue-chip index are more exposed to the UK economy, shed 124 points or 0.7% to 17,630. It has rallied by 35% since 18 March lows but remains 21% below its New Year starting point.
The Schroder UK Mid Cap Fund (SCP), a bellwether of UK plc managed by Andy Brough and Jean Roche, retreated 23p or 4.7% to 467p, undoing some of its 16% rally in the past month. At yesterday’s close its shares had lost over a quarter of their value this year.
The FTSE Small Cap index drifted five points or 0.1% lower at 5,116.
(9:50) Banks lead FTSE rebound at open
The FTSE 100 bounced after punishing falls yesterday, led higher by banks and insurers ahead of the US Federal Reserve policy announcement.
Cyclical stocks pushed the UK’s main index 39 points, or 0.6%, higher to 6,375 with financial stocks making up the majority of the top risers.
The US central bank is not expected to make any major changes to interest rates having already put in place a major stimulus package in response to the coronavirus crisis but it is likely to turn its attention to strengthening the burgeoning economic recovery.
The major banks clawed back some of yesterday’s large losses, with Lloyds (LLOY), Royal Bank of Scotland (RBS), and Barclays (BARC) all moving at least 2.5% higher while insurance groups RSA Insurance (RSA) and Phoenix Group (PHNX) gained 2.5% and 2%, respectively.
AJ Bell investment director Russ Mould said the pick up in markets after two days of declines would be ‘important for investor sentiment’.
‘There has been a sense of euphoria in recent weeks with US stocks recover all their year-to-date losses and equities around the world racing ahead,’ he said.
‘Yesterday’s pullback made investors more nervous and a prolonged pullback, such as three or four days of declines, could have switched the market mood to fear once again.’
The FTSE 250 ‘mid-cap’ index gained 0.8%, or 143 points, to trade at 17,891, boosted by Lancashire Holdings (LRE). The insurer gained 7.7%, or 56p, to trade at 782p after it raised £277m from investors.
Shore Capital analyst Alan Devlin said the raise was an ‘offensive move versus the arguably defensive move of its peers’.
‘Lancashire estimates that its losses form Covid-19 are $35m (£27m), less than 10% of the capital raise, allowing the company to redeploy the majority of the capital to write higher premiums in an increasingly hard insurance market,’ he said.
FTSE falls on OECD’s dire coronavirus warning