The nationwide hunt for toilet paper and pasta continues as the UK is full of people either self-isolating, not publicly socialising or those acting like a global pandemic isn’t taking place at all. Things seemed to have escalated recently in the UK, but as we sit at home waiting for normality to be restored, the markets aren’t waiting for such luxury. So, this week’s rundown takes a look at the main UK markets, and how they’re reacting to the virus.
Where better to start than with the FTSE? Like pretty much every other global stock index, the UK 100 suffered colossal losses at the hands of the pandemic over recent weeks.
After stably lingering in the 500-point range between 7,000 and 7,500 for the majority of 2019, 2020 began in similar fashion. But as soon as cases started to rise by around 33% daily, the full scope of the situation became clearer and the index reacted sharply.
From closing at 7,405 on 21 February, then in less than four weeks it was down as low as 4,840, losing nearly 35% in total. It suffered its worst single day of trading since 1987, along with its US, German and other European counterparts. Every stock in the index was down at one point.
This week though, the FTSE chart read for a much more promising outlook. After suffering such damaging losses, in the last few days it looks to have seeked refuge at the 5,200 level. The volatility has died down… for now. It seems like the market, along with many others, is taking a breather after a period of absolutely unprecedented volatility.
From one disastrous market to another - cable. Stimulus measures were announced by the UK government in an attempt to keep the economy afloat, but they seemed to be ineffective. Meanwhile, the USD is considered somewhat of a safe-haven asset given the prowess of the US economy. Greenback is therefore benefitting from this global crisis, as traders see the dollar as a safer asset than most.
Having said that, the US economy is far from flourishing. The Dow was at all-time highs but these have been severely cut into as it lost over a third. This is as the virus begins to sweep across the US, which is perhaps a few weeks behind Europe in terms of the spread of infection.
Cable, meanwhile, reacted differently to the FTSE. It held off longer around the 1.300 level before plummeting. Mid way through March, shortly after the stimulus measures were announced, cable began to descend. Traders clearly saw not enough substance in the measure, causing a sell-off. It fell as low as 1.145 on Wednesday but has since recovered back up to the 1.187 level.
Similarly, GBPEUR has been pushed down. It mirrors the activity of cable, with the descent beginning at a similar time. Although parts of Europe are far worse than the UK, with Italy emerging as a new epicentre of the virus and Spain recently being overwhelmed with cases, it's the action implemented that may be hindering the pound.
The EU has closed borders and most countries are not allowing much, if any, international travel. Schools have been shut, bars, clubs, cinemas too. Social distancing is not exactly being enforced, but lockdowns are being taken seriously. It’s this decisiveness of Europe and the indecision of the UK (or what is perceived as indecision by not fully shutting schools and announcing full lockdown) that’s hindering the pound.
GBPEUR was heading for parity as it fell from the 1.200 level and reached as low as 1.050 before rising back up to 1.100.
Central banks’ policies would not have helped with stabilising this currency market. The BoE reduced interest rates to record lows this week, and the ECB announced an huge economic stimulus package, but with neither seemingly being effective, these actions have backfired. Further decisions could be made by the BoE this week, which again might fuel some more volatility.