E3: Markets slide and pound tumbles as Covid-19 crisis deepens - business live
Fears of a deep downturn are rattling markets despite stimulus packages in US, UK and the eurozone
- European markets have fallen heavily again
- Oil down sharply. Government bond yields are up
- Coronavirus UK: Sainsbury’s announces elderly-only shopping hour
- Coronavirus – latest updates
- See all our coronavirus coverage
The scale of the pound’s sudden slump below $1.20 is remarkable, says Neil Wilson of Markets.com. It’s not just because the dollar is in massive demand.
He writes:
Sterling has completed one of its steepest declines in memory by hitting its weakest level since 1985, excluding if you will the brief dive of the Oct 2016 ‘flash crash’.
This is the worst sustained period of sterling selling that I can recall, and it points to a severe dollar liquidity crunch that central banks have yet to get a grip on. There is a synchronised rush for dollars that has caught most companies, governments and traders on the hop. Dollar funding issues have been far more serious than estimated prior to this crisis.
A growing number of European carmakers are downing tools, my colleague Rob Davies reports:
BMW and Toyota have joined a rapidly lengthening list of carmakers shutting down European operations, affecting UK plants in Oxfordshire and Derbyshire, as the coronavirus brings the automotive industry grinding to a virtual halt.
More than 10,000 car workers have been laid off across the industry as Nissan, the Mercedes-Benz parent, Daimler, Volkswagen, Ford, Fiat and Peugeot have already announced suspensions of their European output. Jaguar Land Rover kept its UK sites operating but has frozen output at its Slovak factory.
Related: BMW and Toyota suspend European operations
Faced with Britain’s stockpiling frenzy, Asda closing its cafes and pizza counters and restricting shoppers to three items on all food, toiletries and cleaning products.
It says:
“We have plenty of products to go around but we have a responsibility to do the right thing for our communities to help our customers look after their loved ones in a time of need.”
Related: Asda puts restrictions on shoppers to limit stockpiling
Sterling has fallen by 1% against the euro too.
The pound is now worth €1.082, down from €1.095 last night, meaning one euro is worth 92.3p - the weakest since August 2019.
Investment firm Aviva has suspended trading in its UK property fund saying that the the coronavirus has made it impossible to correctly value the assets that it holds.
The £461m fund is the third to be closed since the economic impact of the pandemic started to be felt in the UK. The fund, which invests in a range of commercial properties including offices, high street shops and leisure facilities, is regularly valued by an independent company and the price of buying shares in it is determined by that valuation’. Aviva said that it had been advised that there was currently too much uncertainty in its valuation, and that there was a risk that investors could buy or sell shares at a cost that did not reflect their true worth.
Sterling is continuing to slump - it’s now down almost 1.5 cents today at $1.191.
That’s the lowest since the post-Brexit vote flash crash in late 2016 - but really, we’re looking at the lowest point against the dollar in decades.
The UK currency has not consistently traded under $1.20 since the 1980s.....
“Everyone thought that Brexit was the big deal for sterling this year but …the currency has been completely overwhelmed by the coronavirus,” said Richard Benson, co-chief investment officer at Millennium Global Investments in London.
European markets are looking even messier, with the FTSE 100 now down almost 290 points or 5% at 5007 after three hour’s trading.
That would be a new eight-year closing low if trading ended now.
Deutsche Bank seeing Q2 annualised contractions of 13% in US and 24% in Euro area
The pound has sunk below $1.20 against the US dollar, for the first time since last September.
Its currently down three-quarters of a cent today, at $1.1975.
Government bond prices are weakening today, as investors sell up.
This is pushing the yield on UK, US, German and other European government debt up from their recent record lows - a sign that prices are dropping from their peaks.
Bond yields in the US and Europe rose to their highest levels in weeks as fund managers under pressure to return cash to investors were forced to dump their most liquid holdings, according to traders. Yields move in the opposite direction to prices.
“This is fire-selling of liquid assets by those who need to meet redemptions,” said Mike Riddell, a portfolio manager at Allianz Global Investors. “A lot of people need cash and they’re liquidating the only thing that they can.
UBS has slashed its forecast for China’s economic growth - warning that it could contract at an annual rate of 30% this quarter.
That’s because the mobility restrictions imposed to contain the virus have had a chilling impact on the economy, while also curbing infections.
Only 0.005% of China’s population is confirmed to be infected but, because of the near complete halt in activity for 4-6 weeks, we now expect Q1 growth to fall -31% QoQ annualized, and full year growth to come in as low as 1%YoY.
That revision moves our 2020 global growth forecast from 2.4% to 1.5%YoY, halfway towards our worst-case scenario. And many countries are now following China’s example.
Gosh! The European Central Bank has slapped down one of its own governing council members, Austria’s top central banker, after he suggested monetary policy was running low on gas.
In an interview with Austria’s Der Standard, Robert Holzmann suggested the ECB was at its limits and markets were expecting too much from policymakers.
We cannot solve the problem on our own, it is now primarily a matter of fiscal policy. It is the state’s responsibility to provide liability and social support.
Monetary policy cannot cover up the problem.
With regards to comments made by Governor Holzmann, the ECB states:
The Governing Council was unanimous in its analysis that in addition to the measures it decided on 12 March 2020, the ECB will continue to monitor closely the consequences for the economy of the spreading coronavirus and that the ECB stands ready to adjust all of its measures, as appropriate, should this be needed to safeguard liquidity conditions in the banking system and to ensure the smooth transmission of its monetary policy in all jurisdictions.
We're at the "central bankers telling other central bankers to shut the hell up" stage of the crisis
What more could the UK government do to help companies?
One idea, being pushed by business groups, is to reverse the national insurance scheme - to inject cash back into struggling firms.
“So the thought that we have put to the chancellor is to reverse national insurance contributions, not just defer or cancel them, but actually get the flow working in the other direction.”
The CBI proposal makes sense - reverse the National Insurance system to support wages. Do this for firms that can demonstrate a precipitate fall in turnover in the last few weeks. Enlist the aid of the accountancy profession to assess this so that decisions can be made quickly.
Here’s our round-up of today’s profit warnings from across Europe, as the coronavirus downturn deepens:
Related: Profit warnings from firms across Europe mount as Covid-19 bites
Chemist chain Boots says products needed by customers during the coronavirus crisis will soon be available again in stores, as their supply chain reacts to increased demand.
Sebastian James, the chief executive of Boots, told BBC Radio 4’s Today programme that products including hand sanitiser, paracetamol, pain relief, baby products and cleaning products should be flowing more freely.
“504 lines are very much in demand at the moment in our stores, we are are getting more every day, it’s a little and often, we ship to our stores every single day, sometimes twice a day.”
Italian government bonds are coming under real pressure today.
The yield, or interest rates, on 10-year Italian debt has jumped over 3%, for the first time since the end of 2018. That widens the gap with German debt - a sign that traders are getting worried.
BTP out of control. Need a circuit-breaker. pic.twitter.com/IhFMduXqj4
After 90 minutes trading, European stocks are sagging.
The FTSE 100 index is now down 4.5%, as the latest stimulus packages announced by world leaders fail to reassure the markets.
“The jury is still out on whether these measures will help stabilise financial markets.”
2008 was a crisis born in shadow banking that exposed how over-leveraged the financial sector had become and for many banks, including large ones, over-dependence on short-term funding was a major weakness which, in turn, caused liquidity to dry up. The banks were in the front line of the crisis.
This time (economic) front line in the crisis, is the damage the pandemic is wreaking on companies in exposed sectors and on the economy more widely as the crisis spreads. So while market participants scramble de-leverage, the banks need money to lend to companies whose cashflow situation has changed almost overnight.
Over in Lisbon, the Portuguese government has announced a €9.2bn coronavirus economic package.
It includes €3bn of government-backed credit guarantees, €1bn for social security payments, and a €5.2bn fiscal stimulus, Reuters reports.
As markets shrug at yesterday’s £350bn economic rescue plan, the UK government has suggested it could take further action - which could include more help for employees
Speaking on the Today programme, business secretary Alok Sharma said the proposals put forward by the chancellor had been well-received by groups including the CBI, but confirmed that more action would be needed.
“I completely understand that people want us to go further, particularly on this issue of support for employees, for employment... The chancellor was very clear that this is a conversation he and I are having with employers and trade unions, and we’ll come forward in the coming days with further measures.”
“The principle is that yes we will get support to businesses for employees measures specifically”.
“The vast amount of businesses want to operate, they will behave sensibly, but I completely get this point about measures specifically for employees and employment and we will come forward with those.”
The coronavirus crisis has forced Selfridges,the high-end department chain, to shut its stores in London, Manchester and Birmingham will close from 7pm tonight.
How soon before other department store stores follow Selfridges lead? High fixed costs and presumably no shoppers. https://t.co/tUjUqYBhnC
Investment bank Jefferies has welcomed Rishi Sunak’s £330bn stimulus package, saying it will help the UK economy recover.
The next few months will be grim - GDP could fall by up to 15% in April-June. They told clients:
Such quarterly declines in GDP are unprecedented, certainly in living memory, and will lead to further corporate failures and economic hardship.
However, today’s announcements should be seen as further important steps to help address the substantial economic costs of effectively shutting down economies, and a further move towards substantial fiscal easing and rising government debt across many economies.
The smaller FTSE 250 index is having a rough morning, again, down another 3.6%.
Transport groups National Express and Go-Ahead Group have both tumbled 20%, as commuters continue to shun services and work from home.
Fears of a deep global recession are driving the oil price down again today.
US crude has dropped nearly 4% to $25.83 per barrel, which looks to be the lowest since 2003.
#WTI just dropped to its lowest since 2003. Mind-boggling to see oil trading at these prices. #OOTT #ONGT pic.twitter.com/lsRfIdRGwz
European stock markets are also under pressure, with the Stoxx 600 index down 3.3% and Germany’s DAX has dropped 4.7%.
That’s a disappointment for investors, who saw stocks jump yesterday.
The fact that markets keep shrugging off the stimulus measures reflects the deep uncertainty about the economic damage about to be done. But these moves are not the 7,8,9,10% type swings. This is better - smaller daily swings are the first step to stabilisation before we can start to look at the bottom being in.
For now every rally is sold into, every financial relief effort is an opportunity to get out from positions long held. The market is behaving extremely short-term in its outlook, whilst the long-term effects are entirely unclear. The Vix remains elevated at 75, though somewhat off its highs around 85 after Wall St bounced yesterday.
Here are the top risers and fallers on the FTSE 100 this morning.
Britain’s stock market has opened in the red, as the government’s £330bn Covid-19 rescue plan fails to calm nerves in the City.
The FTSE 100 has dropped by 180 points, or 3.3%, to 5123 - wiping out Monday’s rally.
UK supermarket Morrisons has reported a jump in sales - thanks to UK shoppers desperately stockpiling.
But it’s not celebrating - instead, the group says it faces “unprecedented challenges and uncertainty” dealing with coronavirus.
“Looking after our colleagues and customers is our priority, ensuring that we have a clean, safe place to shop and work.”
British fashion brand Superdry has warned it will miss its financial targets for this year.
It says 78 stores are now shut across Europe, and customer numbers are falling in the US and UK. This means it won’t meet forecasts given in early January for 2020.
Restaurant Group, which runs the Wagamama, Frankie & Benny’s and Chiquito chains, has told the City its trading has tumbled in the last fortnight.
It says:
Group like-for-like sales for the first eight weeks of the financial year were up 4.5%, in a period unaffected by Covid-19.
In the last two weeks we have seen an increasing and material impact of Covid-19 across our businesses with Group like-for-like sales being down 12.5%. In particular, our Concessions business has been significantly impacted with like-for-like sales down 21.7% and getting worse by the day given International travel bans.
The Restaurant Group is fundamentally a resilient business with a strong asset base, substantial cash liquidity and strong cash flow
A flurry of UK companies are warning that the coronavirus crisis is damaging their businesses.
For the first 24 weeks of the year, up to 14 March, like-for-like sales were 0.9%.
Within this recent trading has been severely impacted by COVID-19 and the containment measures taken by the Government, including the recommendation to avoid pubs and restaurants which is now expected to lead to a further significant downturn in sales.
Recent statements from the UK Government suggest that the current state of much reduced social activity is likely to continue for several months at least. If that is the case, it is unlikely that an interim dividend will be recommended in May, retaining c.£20 million in the business.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Related: 'Whatever it takes': chancellor announces £350bn aid for UK businesses
Related: New Zealand launches massive spending package to combat Covid-19
European Opening Calls:#FTSE 5065 -4.35%#DAX 8545 -4.41%#CAC 3828 -4.10%#AEX 405 -4.58%#MIB 14597 -4.69%#IBEX 6244 -3.92%#OMX 1332 -2.94%#STOXX 2413 -4.64%#IGOpeningCall
That call appears to be finally being heeded by governments around the world. Globally, from New Zealand to Spain, impressively large fiscal packages are being rolled out to mitigate the effects of the coronavirus recession.
Most pleasingly, the United States seems to be finally getting its act together, with the White House seeking approval for a $1.2 trillion package that includes direct payments to households. The White House is proposing two tranches, of $1,000 and $2,000 to qualifying Americans within two weeks. Other proposals were $300 billion in small business loans and income tax payment deferrals. Off course this all needs to be approved by Congress, and one could argue, it probably isn’t enough.
Related: Sainsbury’s to close its meat, fish and pizza service counters to free up staff
“The suspension of the Kames Property Income fund has been swiftly followed by the Janus Henderson UK Property fund also suspending on the basis of material uncertainty over the valuation of UK commercial property.
With independent valuers finding it impossible to accurately value property given the major economic uncertainty, there is little choice but to suspend dealing.
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