The FTSE 100 has seen its impressive morning gains wiped following a statement from the Organisation for Economic Co-operation and Development (OECD) on the effect of the coronavirus epidemic on the global economy.
London’s blue-chip index surged as much as 2.6 per cent in initial trading, thanks in part to comments from the Bank of England (BoE). A surge in European cases last week ravaged European stock markets, with £200 billion wiped of the FTSE 100.
In an effort to reassure markets the BoE stated: “The Bank is working closely with HM Treasury and the FCA – as well as our international partners – to ensure all necessary steps are taken to protect financial and monetary stability.”
Trade UK 100 - UK100 CFD
The momentum such comments gave to stocks was short-lived however, after the OECD’s Interim Economic Assessment of the virus.
It stated that: “Annual global GDP growth is projected to drop to 2.4 per cent in 2020 as a whole, from an already weak 2.9 per cent in 2019, with growth possibly even being negative in the first quarter of 2020.”
By the early-afternoon trading the FTSE 100 around 3.3 per cent from its morning highs, to stand down 0.65 per cent at 6,548.00.
The OECD observed that the epidemic is likely to have an intense but short-lived effect on the global economy, which can be countered by fiscal easing.
However, it noted that in a less-likely but not impossible ‘domino’ scenario, in which the crisis significantly affects major western nations for an extended period of time, some central banks will not have the proper means of reacting.
It stated that “several central banks could become constrained by the zero lower bound on policy interest rates, including those in Australia, Korea and the United Kingdom.” And advocated for “unconventional policy measures… to make policy more accommodative.”
Beyond the stated concerns of venerable institutions such as the OECD, the FTSE has fallen in part because of the immediate realities on the ground. Airline stocks which make up a proportion of the index continue to haemorrhage as the tourism industry falters.
By early-afternoon trading, International Consolidated Airlines Group (IAG) which includes British Airways, Iberia and Aer Lingus, has fallen 11.29 per cent to 418.70 pence.
While easyJet (EZJ) has fallen 5.72 per cent to 1,037.50 pence.
With thirteen more cases in the UK announced on Monday, bringing the total number to 36, even British companies less dependent on international business are bracing for what is ahead.