Shares in London have had their worst losses in more than three months amid fears that a second wave of coronavirus cases will force the government into harsh lockdown measures that will damage the economy.
The FTSE 100 – the leading benchmark of the UK stock market – closed more than 200 points or 3.4% down at 5,804 points on a day of sharp falls in equities in both Europe and North America.
More than £50bn was wiped off the value of leading UK-quoted companies as hopes of new treatments for Covid-19 were outweighed by concerns about a double-dip recession.
In the US, the Dow Jones closed down more than 500 points, or 1.8%, at 27,148. The S&P 500 fell 1.2% and the tech-heavy Nasdaq was down 0.1%.
Larry Kudlow, Donald Trump’s economic adviser, expressed the views of many jittery investors when he said there was a worry that the UK and other parts of Europe may shut down again because of the virus.
The FTSE 100 in 2020
Guardian graphic | Source: Refinitiv
Neil MacKinnon, global macro strategist at VTB Capital, said: “Many economic commentators think that another lockdown would be disastrous for the major economies and undermine the nascent economic recovery which has been in place in the last few months.
“A new lockdown would significantly increase both the unemployment rate and bankruptcy rates, especially for small businesses.”
Oil prices also tumbled as concerns mount about western economies being in for a tough winter, during which demand for crude would be lower than previously expected.
The cost of benchmark Brent crude was down by almost 2% at $42 a barrel on Monday, as financial markets returned to their jittery state of February and March, when the implications of the first wave of the virus became apparent.
An early decline in shares on Wall Street added to the gloom in Europe. All three of New York’s main measures on stock market health – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq – were down in early trading.
Analysts said the upbeat mood which led share prices to hit new record levels in the US last month had dissipated as investors weighed up the prospect of slower growth and the receding prospect of Republicans and Democrats in Congress reaching a deal on a new stimulus package.
With the UK health secretary, Matt Hancock, warning that Britain was at a coronavirus “tipping point” and that people tended to contract Covid-19 in social settings, shares in travel and hospitality companies in the FTSE 100 and the broader FTSE 250 were among the hardest hit by the sell-off. Shares in British Airways’ owner, IAG, and the pubs groups Mitchells & Butlers and JD Wetherspoon fell sharply.
There were only five risers in the FTSE 100 – Tesco, Morrisons, Just Eat, Sainsbury’s, and the discount retailer B&M – as traders backed companies likely to fare better than others in the event of further restrictions.
The transport secretary, Grant Shapps, said the government could not wait for deaths to start rising before taking action.
London was not alone in big falls in share prices. Markets in the rest of Europe were also affected by the pessimistic mood, with Frankfurt’s DAX index slumping by 4.4%.
“Concerns are rising that the summer recovery is probably as good as it gets when it comes to the recent rebound in economic activity,” said Michael Hewson, the chief market analyst at CMC Markets UK.
“This reality combined with the growing realisation that a vaccine remains many months away, despite Trump’s claims to the contrary, has made investors increasingly nervous, as we head into an autumn that could see lockdowns reimposed.”
Reports that UK banks had channeled illicit funds over more than two decades added to the woes of the FTSE 100, which is heavily weighted with bank shares. Germany’s Deutsche Bank, which was allegedly responsible for half the suspicious transactions notified to the US authorities was one of the biggest fallers in Frankfurt, losing 8% of its value.
Hancock said preventative measures taken by the government would be different from the blanket lockdown, which led to a 25% slump in economic activity in two months after being introduced at the end of March.
The economy began to claw back some of the lost ground from May onwards, but there are growing concerns that the recovery will peter out if new restrictions are imposed.
Ministers are determined to keep schools open but hefty falls in the share prices of pubs, brewers, hotel groups and travel companies reflects the belief that consumer spending will be affected by new measures to enforce social distancing.