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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Markets slide amid Covid-19 recession and trade war fears - as it happened

A currency dealer at the headquarters of Hana Bank in Seoul, South Korea, today.
A currency dealer at the headquarters of Hana Bank in Seoul, South Korea, today. Photograph: YONHAP/EPA

Closing summary

Time for a brief recap

Stock markets have fallen sharply in Europe as investors worry about the economic damage caused by the Covid-19 pandemic.

Donald Trump has intensified his criticism of China, fuelling concerns of a new trade dispute between Washington and Beijing.

America’s jobs crisis intensified, with nearly three million more US citizens filing new claims for unemployment benefit.

Cruise operator Carnival is to cut jobs, as it tried to reduce costs and ride out the lockdown. British Airways is also refusing to halt its plans to axe 12,000 jobs.

Lloyd’s of London predicted that the cost of the outbreak could top $200bn for insurers

Andrew Bailey, the governor of the Bank of England, warned there will be long-term economic damage caused by the pandemic - but also sounded reluctant to introduce negative interest rates.

Britain’s budget watchdog warned that the UK’s budget deficit could hit £300bn this year, prompting the obvious question - how to pay for it?

On that note, goodnight, GW.

And finally... Britain’s budget watchdog has warned that the cost of the Covid-19 rescue packages keeps rising, as our economics editor Larry Elliott explains:

The mounting cost of government schemes to help Britain through its worst recession in more than three centuries has risen by £20bn in the past two weeks and will result in a budget deficit of nearly £300bn in the current financial year, a report has forecast.

Fresh figures from the Office for Budget Responsibility, the independent body responsible for forecasting the public finances, showed that measures such as the Treasury’s furlough scheme will total £123bn, up from £103bn in late April.

The figures come days after the chancellor, Rishi Sunak, said the government would continue with its wage subsidy scheme until the end of October, with employers expected to bear some of the cost from August.

FTSE 100 falls 2.75% to three-week low

Newsflash: Britain’s stock market has closed at its lowest level in over three weeks.

Despite clawing back some of its earlier losses, the FTSE 100 index of blue-chip shares has had its worst day since 30 April.

The Footsie has closed down 162 points, or 2.75%, at 5741, the lowest closing level since Tuesday 21 April.

The FTSE 100 in the last quarter
The FTSE 100 in the last quarter Photograph: Refinitiv

Software firms Sage and Aveva were the top faller, down 7.2% and 7.1% respectively, followed by Ocado (-6.8%).

European markets ended the day deep in the red too, with the Stoxx 600 losing 2.1%.

David Madden, analyst at CMC Marketa, blames growing worries about the economic impact of the health crisis.

Yesterday, the Fed chief, Jerome Powell, cautioned that downside risks are significant, and the economic pain might remain for a prolonged period. The warning from the central banker came at a time when there are growing concerns about the jump in new infection rates as a result of countries reopening parts of their economies.

Governments will need to strike a balance between loosening restrictions, and keeping the health crisis in check. There is a feeling the coronavirus will be hanging over the markets for many months to come.

The City watchdog, the FCA, has released a list of measures which financial firms should consider taking to help customers.

They include:

  • Reassessing the risk profile of customers. This may have changed because of coronavirus and there may be scope to offer customers materially lower premiums.
  • Considering whether there are other products they can offer which would better meet the customer’s needs and revise the cover accordingly. For example, a motor insurance customer might no longer need associated add on cover such as key cover or could be moved from fully comprehensive cover to third party fire and theft.
  • Waiving cancellation and other fees associated with adjusting customers’ policies.

Insurance company Prudential is also among the fallers.

Shares in Prudential are down 5% after sales in Asia were hit by the coronavirus pandemic, with its agents unable to see clients to sell health or life insurance or savings products.

Three-quarters of its 19,500 staff are working from home, and are now trying to sell over the phone or video conferencing.

Prudential’s new business sales in Asia fell 24% to $896m in the first three months of the year, with Hong Kong worst hit, where sales halved. Nearly two-thirds of its business there comes from visitors from mainland China, but the border remains closed. The firm hopes that it may reopen in June.

While warning of a tough second quarter, Mike Wells, the Prudential chief executive, was hopeful that demand for savings and insurance products would grow in the long term.

“People will look at risk differently.”

The firm offers its Pulse app, with a symptom checker and health advice, free to customers as a basic service but charges for consultations with a doctor and prescriptions. Downloads of the app surged during the pandemic, to 4 million from 1.3 million in early March.

Fears of a new US-China trade dispute have left markets sinking today, says Connor Campbell of Spreadex.

Things got really nasty on Thursday afternoon, the growing concerns surrounding the US-China situation and another sharp increase in unemployment causing an intensification of the session’s already pronounced losses.

Having fallen close to 1000 points in the last couple of sessions, the Dow Jones shed another 300 points after the bell, sinking back under 22950 for the first time in 5 weeks.

This as Donald Trump continued to stoke the fires of a feud with Beijing, stating he is ‘very disappointed in China’. Going on to discuss last year’s laboriously created trade deal, the President claimed that ‘the ink was barely dry and the plague came over. And it doesn’t feel the same to me.’

The point that most alarmed investors was Trump’s suggestion that he could ‘cut off the whole relationship with China’. That’s a huge, likely spurious claim; however, sooner rather than later there will be consequences to Trump running his mouth, something he looks set to continue to do as the US election draws closer.

Of course it didn’t help that another 2.981 million Americans filed for unemployment in the week ending May 9th, taking the total to around 36.5 million.

Online grocer Ocado had been one of the few companies to do well through the Covid-19 crisis, but it’s leading the Footsie fallers right now (down 7.6%).

Enterprise software firm Sage is close behind (-7.5%).

European markets are now having a seriously bad day.

Britain’s FTSE 100 has now shed almost 4%, or 227 points, to 5,677. That’s its lowest level in over 3 weeks, wiping out all May’s gains.

The FTSE 100
The FTSE 100 Photograph: Refinitiv

Germany’s DAX and France’s CAC are both down over 3% too.

Wall Street is taking a deeper bath too, with the Dow now down 381 points or 1.6% at 22,866.81 (having already lost 2% yesterday).

US and European stock markets
US and European stock markets Photograph: Refinitiv

Updated

The prospect of a new US-China trade dispute is helping to drive stocks down, given these quotes from Donald Trump on Fox News earlier today:

Wall Street drops

Shares are dropping smartly at the start of trading in New York, as economic anxiety grips markets.

The Dow Jones industrial average has dropped by 268 points, or 1.1%, to 22,979. The S&P 500 has also lost 1%, with the tech-focused Nasdaq down 0.7%.

Bad economic data + worries about the Covid pandemic + Donald Trump attacking China = a falling stock market.

This week the US Department of Labor started releasing figures for those eligible to file for benefits under the Pandemic Unemployment Assistance (PUA) program, a federal unemployment scheme set up for the self employed and gig workers like Uber drivers who had previously not been eligible to make claims.

Some 841,995 people made claims under PUA for the week ending 9 May.

In contrast, just 188,264 unemployment claims were filed in the same week in 2019.

This latest horrendous weekly unemployment report shows why the Federal Reserve is worried about the economic damage caused by the coronavirus pandemic.

Neil Birrell, chief investment officer at Premier Miton, says it will add to the gloom in the markets today:

“Hard on the heels of Jerome Powell’s downbeat comments on the US economy come initial jobless claims that are worse than expectations, although continuing claims are a bit better than thought.

Equities have been struggling since Powell spoke and there is nothing in these numbers to provide respite. However, we seem to be immune to such data points, the worry must be that the cumulative effect will become overbearing.”

Here’s more reaction to the news that millions more Americans filed new jobless claims, for the eight week in a row.

Full story: Coronavirus pandemic drive up unemployment again

Here’s my colleagues Dominic Rushe and Lauren Aratani on today’s jump in US unemployment:

The terrible toll of the coronavirus pandemic on the US economy continued unabated last week as another three million people filed for unemployment benefits, making a total of 36 million in the last two months.

The latest figures from the labor department show the rate of claims is slowing but the record-breaking pace of layoffs has already pushed unemployment to levels unseen since the Great Depression of the 1930s.

Some states have begun to relax quarantine rules and open more businesses, a trend that is likely to help reverse some recent job losses. But many states are still dealing with an overwhelming backlog of claims, so the true number of job losses is still underrepresented by the government figures.

Here’s the full story:

Over 22.8 million Americans filed ‘continuing claims’ for unemployment relief last week, meaning they had been out of work for more than a week.

That’s a huge figure, showing the scale of the jobless crisis in the US.

But it’s below the 25m which Wall Street expected, and much lower than the 33 million initial claims filed since March (not including today’s figure).

Updated

Another 2.9m Americans file initial jobless claims

Newsflash: nearly three million Americans filed new unemployment claims last week, as the US recession deepened.

The closely-watched initial jobless report, just released, shows that 2.981 million new claims were filed in the seven days to May 9th, down from 3.1m in the previous week.

That’s worse than the 2.5 million new claims which were expected.

It means that more than 36 million new ‘initial jobless claims’ have been filed since the crisis began.

Updated

Cruise operator Carnival has announced it is cutting staff, after being forced to suspend sailings due to the pandemic.

It tells shareholders:

To further strengthen liquidity, Carnival Corporation and its brands are announcing a combination of layoffs, furloughs, reduced work weeks and salary reductions across the company, including senior management.

These moves will contribute hundreds of millions of dollars in cash conservation on an annualized basis.

We don’t have further details of the job cuts, but earlier in the week we reported that 450 jobs were at risk in the UK.

Donald Trump’s comments about China on Fox News haven’t helped the mood in the markets.

The Dow is currently on track to open 180 points lower, or down 0.8%, having dropped 2% yesterday.

European markets are falling further too, with the FTSE 100 down 178 points or 3% to 5724. Earlier this week it was nudging 6,000 points.

The slide in equities is pushing up Wall Street’s fear index, the VIX.

That’s a clear sign that investors are getting edgy, and ditching riskier assets.

Saxo Bank’s chief economist Steen Jakobsen writes.

VIX sees largest 2-day move since 17 March highlighting the fragility of the market and how fast sentiment can change from positive to negative.

Bank of England governor Andrew Bailey has warned that Britain’s economy will suffer longer-term damage from the current coronavirus shutdown.

But speaking at a webinar organised by the Financial Times, Bailey warned that there’s much uncertainty over how severe it will be. We don’t yet know whether the BoE’s scenario of a 25% plunge in the current quarter is too pessimistic, or too optimistic.

Bailey also sounded cool about cutting UK interest rates into negative territory. He didn’t rule it out, but called it a “very big step” which would require “an extensive communications exercise.”

(Thanks to Reuters for the quotes).

Donald Trump also told Fox News that “I’m very disappointed in China.”

This isn’t helping the mood in the markets, where the FTSE 100 index is now down 145 points or 2.5% at 5757.

Heads-up. Donald Trump has fired another warning shot at China.

The president has told Fox News he’s ‘looking at’ Chinese companies who are listed on the US stock market, but don’t follow US accounting rules.

He also weighed in on currencies, saying:

“Right now it’s good to have a strong dollar. Right now having a strong dollar is a great thing.”

Trump has also insisted that the US economy will bounce back strongly, with strong growth in the final quarter of this year, and in 2021.

He said (via Fox):

“I call it a transition to greatness. You’re going to have the third quarter….That’s a transition quarter. We’re going to do well in the fourth quarter, and I think next year, with all of the stimulus, all of the things we’ve done, I think we’re going to have one of the best economic years we’ve ever had”

BA: We're pressing on with job cuts

A social distancing sign at Heathrow Airport, in Britain
A social distancing sign at Heathrow Airport, in Britain Photograph: Neil Hall/EPA

The owner of British Airways will press ahead with cutbacks that could see up to 12,000 jobs lost, its boss Willie Walsh has said, despite the government’s extension of the furlough scheme.

In a letter to transport committee chair Huw Merriman MP, Walsh said government support to pay wages would not compensate for “the reality of a structurally changed airline industry in a severely weakened global economy.”

“I want to confirm therefore that we will not pause our consultations or put our plans on hold.”

The comment is an apparent response to Merriman’s appearance in the House of Commons earlier this week when he called on British Airways to “put these redundancy plans back in the hold where they belong”.

Updated

US hedge fund manager Kyle Bass added to the gloom yesterday, by predicting that America’s economy will shrink 10% this year -- effectively a depression.

Marketwatch has the details:

Kyle Bass made his name betting against the U.S. housing market more than a decade ago, and today he is predicting an economic contraction that could be more than three times as severe as that suffered during the Great Financial Crisis.

“For the year I think you’re going to see U.S. GDP down somewhere between 7% to 10% in real terms,” as a result of the COVID-19 pandemic and the government’s efforts to contain the spread of the virus with business shutdowns, and “10% is an economic depression,” said the founder of hedge fund Hayman Capital Management, in an interview.

The sell-off is gathering pace, with the FTSE 100 now down 131 points or 2.2% at 5772 [still the lowest since 5th May].

Almost every stock has fallen, including financial stocks like Legal & General (-5%) and Barclays (-4%), property companies Land Securities (-4.3%) and Persimmon (-4.5%), as well as travel firms like IAG (-4.7%).

Investors seem to be concluding that the world economy will struggle to shake off the lingering impact of the pandemic. Hopes that economic growth might rally later this year, boosting revenues and profits, are fading.

Seema Shah, chief strategist at Principal Global Investors, sums up the problem:

There are some sectors which may be facing a prolonged period of weakness. Aviation being perhaps the most obvious example. In recent weeks, several airlines have announced that they do not expect to resume normal operations until 2022 and Boeing, the aviation bell weather, expects it to take five years and anticipates the failure of at least one major airline.

Similarly, with retail having to comply with social distancing measures for the foreseeable future, this sector also faces serious challenges. In the UK, an Ipsos Mori survey found that almost 50% of Britons would feel uncomfortable shopping, other than in supermarkets, and the British Independent Retailers Association has forecast that up to 20% of smaller shops may not even reopen once government support schemes begin to fade. Even after lockdowns are lifted, market participants should anticipate a wave of business failures across many sectors and across countries.

Unfortunately, the fallout from struggling businesses does not just stop there. Bankruptcies create negative feedback loops, particularly for the labour market. Consider this: as we hear of more and more businesses contemplating closure, there are potentially millions of currently furloughed people who will not be reemployed. A second wave of job losses is perhaps in the cards.

And therein lies the problem. Markets may be right to look through Q2 numbers and look forward to a Q3 recovery. But it is entirely possible that there will be a Q4 reckoning, where a second wave of job losses & prolonged period of business failures tests equity sentiment.

Lloyd’s of London, the world’s biggest insurance market, has predicted that Covid-19 will cost insurers more than $200bn, putting it alongside the worst disasters of recent years.

My colleague Joanna Partridge explains;

Lloyd’s expects to pay out between $3bn (£2.4bn) and $4.3bn (£3.5bn) to its customers due to the coronavirus pandemic, as it warned of a $203bn hit for the entire industry.

Insurance companies around the world have suffered losses as widespread government shutdowns have prompted claims for business closures, and halted travel and events.

The scale of payouts to customers forecast by Lloyd’s this year are equivalent to other big claims years for insurers, such as the aftermath of 9/11, when Lloyd’s paid out $4.7bn, and in 2017, when hurricanes Harvey, Irma and Maria caused widespread damage and loss, leading to $4.8bn in payouts.

Just in: Many UK firms fear they don’t have enough cash to survive a lengthy period of Covid-19 disruption.

That’s according to the Office for National Statistics, which just released its latest findings on the economic and social impact of the pandemic.

It says:

  • Of UK businesses that responded to our fortnightly Business Impact of Coronavirus (COVID-19) Survey (BICS) for the period 20 April to 3 May 2020, 44% of businesses who had not permanently ceased trading between 20 April and 3 May reported that their cash reserves would last less than six months.
Many UK firms say they don’t have enough cash reserves to survive a long period of Covid-19 disruption
Many UK firms say they don’t have enough cash reserves to survive a long period of Covid-19 disruption Photograph: Office for National Statistics

The ONS also found that 91% of businesses who had paused trading applied for the Coronavirus Job Retention Scheme, to cover the pay of furloughed workers, compared with 72% of businesses who were still trading.

And less than 1% of firms said they had permanently ceased trading during the period 20 April to 3 May 2020.

Updated

The International Energy Agency (IEA) has slightly raised its forecast for oil demand this year a little, as economies start to lift lockdown restrictions.

The IEA now expects demand to fall by 8.6 million barrels per day in 2020 -- up from 9.3m bpd before, but still a record decline.

But the agency also warns that a second wave of Covid-19 infections would trigger more economic disruption, saying:

“Economic activity is beginning a gradual-but-fragile recovery. However, major uncertainties remain. The biggest is whether governments can ease the lockdown measures without sparking a resurgence of COVID-19 outbreaks.

Recession anxiety has pushed the pound down to a five-week low against the US dollar.

Sterling dropped below $1.22 for the first time since April 7th, as traders moved into safe-haven currencies.

A WH Smith store sign.
A WH Smith store sign. Photograph: Phil Toscano/PA

High street and travel hub retailer WH Smith has reported that its sales were pretty much obliterated last month, under the lockdown.

Total revenues in April fell 85% compared with a year ago, including a 91% plunge at airports and railway stations where most outlets are closed. High Street revenue dropped 74%.

But there are positives. WH Smiths’ online businesses “performed strongly”, with a 400% jump in book sales in the last month. The company is also still operating 130 stores in hospitals across the UK.

Plus, plans are “on track” for a phased re-opening of stores.

But still.... CEO Carl Cowling warns:

Since March, we have seen a significant impact on our business as a result of Covid-19, with the majority of our stores closed around the world.

Updated

Federal Reserve chair Jerome Powell gave investors a ‘dire warning’ about the economic prospects yesterday, says John Velis, strategist at BNY Mellon.

Velis writes:

In short, Powell is warning of a long, drawn-out recession, where productivity, income, and employment growth stagnate and where entire businesses and industries are wiped out and debt mounts “for years to come”. This is a dire risk, and one which Fed policy tools cannot do much to address without an assist from fiscal policy.

The Fed had been content to “let the economy run hot” during the economic expansion. In recent years Powell frequently hailed the progress made in getting lower-income and previously marginalized members of society into the labor force.

This was clearly a priority for him and a point of pride during the expansion, and today he lamented the fact that the economic and personal effect of the current crisis “has fallen most heavily on those least able to bear it”. Citing a soon-to-be-released New York Fed study, he pointed out that 40% of households earning less than $40,000 per year had incurred job losses.

This chart from BNY Mellon also shows how the pain of Covid-19 isn’t being shared equally:

US unemployment, by educational level

FTSE 100 hits one-week low

Fears of a protracted global downturn have dragged Britain’s blue-chip stock index to its lowest point in over a week.

Travel firms are among the top fallers on the FTSE 100, following WHO’s warning that the coronavirus ‘may never go away’.

British Airways owner, IAG, down 4%. Intercontinental Hotels has lost 2.7%, as has Whitbread (owner of Premier Inns).

European stock markets, May 14 2020
European stock markets, May 14 2020 Photograph: Refinitiv

This leaves the FTSE 100 at 5827, down 1.3%, which is its weakest since Tuesday 5th May.

The FTSE100
The FTSE 100 over the last quarter Photograph: Refinitiv

Updated

As well as Covid-19, investors are also fretting that the US-China trade war could resume.

US president Donald Trump fuelled these fears yesterday, with this tweet:

Jim Reid of Deutsche Bank explains:

We just about managed to cope with a downbeat assessment from Fed Chair Powell but couldn’t after additional evidence that the US/China relationship is souring further.

This [Trump’s tweet] was followed by China Global Times headlines saying that China is “extremely dissatisfied” with the possibility of the US sanctioning or otherwise punishing China over the coronavirus epidemic and would look to retaliate and were “mulling punitive countermeasures on US individuals, entities and state officials like Missouri’s attorney general, who filed lawsuits against China in seeking damages over the coronavirus pandemic.”

Introduction: Covid-19 fears abound

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Worries over the human and economic cost of Covid-19 are continuing to dog the markets today.

US Federal Reserve chair Jerome Powell gave investors a jolt yesterday, when he warned the US risks a ‘prolonged recession’, and an “extended period” of weak economic growth.

Powell’s prognosis is a blow to any lingering hopes of a V-shaped recovery -- the road back from this pandemic is going to be rather bumpier.

The Fed chair also warned that governments may need to spend even more to protect their economies - on top of the huge stimulus packages already laid out.

Mark Haefele, CIO at UBS Global Wealth Management, fears this call may not be heeded.

Powell called for further fiscal stimulus to help offset the economic fallout from the pandemic, but ruled out pushing US interest rates into negative territory. Given ongoing partisan tensions in Washington, the additional fiscal stimulus Powell called for seems unlikely to immediately materialize.”

His warning came hours after we learned Britain had suffered its biggest monthly decline in GDP on record, with UK GDP shrinking by almost 6% in March.

Health experts are also expressing caution against assuming that life can return to normal soon.

Overnight, the World Health Organisation warned that coronavirus “may never go away”. Their emergencies chief, Michael Ryan, said:

“It is important to put this on the table: this virus may become just another endemic virus in our communities, and this virus may never go away.

I think there are no promises in this and there are no dates. This disease may settle into a long problem, or it may not be.”

Stocks in the Asia-Pacific region have fallen back, with Japan’s Nikkei 225 and Australia’s S&P/ASX 200 both down 1.7%, after Wall Street dropped over 2%.

European market have opened lower too, with the FTSE 100 shedding another 82 points to 5821.

The global risk sell-off is picking up momentum on worries that the post-coronavirus economic recovery may be bumpy due to renewed contagion waves, explains Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank:

The UN warned that the coronavirus crisis could shed four years of growth and push 130 million people into extreme poverty. If the business reopening plans fail worldwide, these numbers could shoot up and paint an uglier economic picture for the decade to come.

The latest weekly US jobless report will another dollop of paint to the canvas - economists predict that another 2.5m people filed new unemployment claims last week.

That would lift the total since the crisis began to around 35 million people. Unimaginable a few months ago.

The agenda

  • 9am BST: European Central Bank publishes its Economic Bulletin
  • 1.30pm BST: US weekly jobless figures

Updated

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