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Equity markets are rebounding sharply today, but are not close to covering the losses suffered yesterday, when multiple headline indices suffered the worst single session since the depths of the 2008 financial crisis. The FTSE 100 has been up over 4% this morning and Wall Street futures indicate a similar uplift for US stocks. This can be attributed to optimistic talk of overselling and policy response, but with economic and financial forecasts being continuously re-written, the direction of travel for markets is extremely uncertain.
Yesterday's sell-off saw the FTSE 100 and S&P 500 fall 7.25% and 7.60% respectively, pushing London's index into bear market territory. The trigger for the rout was the oil price, which plummeted around 24% after OPEC and Russia failed to reach an agreement on price-supporting production cuts. Instead, both Saudi Arabia and Russia pledged to raise output, essentially starting a price war. It was the biggest one-day decline for oil prices since the Gulf War in the early 1990s.
Investors were already working hard to digest the fast-evolving coronavirus situation. Italy has hastily placed its entire population of 60m people in quarantine following the rapid acceleration of its number of cases. It is unlikely that Italy will be alone in implementing such extreme measures, perhaps merely a few weeks ahead of some other countries.
As such, expectations of policy responses have risen. The Federal Reserve cut its rates last week and is expected to follow up with significant additional support this week. The entire Treasury yield curve traded below 1% for the first time on Monday. President Trump said that he would announce a relief package today, potentially easing the financial burden on workers, with paid sick leave thought to be on the agenda.
In the UK, chancellor Rishi Sunak has said he will deliver “whatever action is required” to deal with the coronavirus crisis, ahead of his first budget speech on Wednesday. MPs have been urging the government to give small businesses tax concessions to help them battle falling consumer demand and higher sick pay costs.
Oil companies suffered their worst day in over 20 years yesterday after Brent crude fell to just $35 a barrel. Royal Dutch Shell and BP, two of FTSE 100's most valuable companies and biggest dividend payers, fell 18% and 20% respectively. From the FTSE 250, Premier Oil plunged 57% lower while Tullow Oil closed down 32%.
A report from the China Academy of Information and Communications Technology has shown that iPhone sales in China fell 61% last month, compared to the previous year. The drastic fall is a direct consequence of the coronavirus crisis and shows how strict restrictions on large populations will affect companies' earnings. Sales in China make up about 15% of Apple's total revenue.
M&G has warned that the virus-related market turmoil is weakening its capital position, but that its Solvency II coverage ratio was “within our risk appetite”. Reporting its results this morning, M&G, which demerged from Prudential last year, announced adjusted operating profit before tax of £1.15bn. Net outflows for the year totalled £1.3bn.
Tesco has agreed to sell its Asian business to one of Thailand's richest conglomerates for £8.2bn. The deal follows a strategic review in December following “inbound interest” and the price paid by Charoen Pokphand Group has been well-received. Tesco says it plans to return most of the windfall to shareholders and its pension scheme.
Flybe became a major victim of the coronavirus last week, sinking into administration after the virus hit flight bookings. The impact on new bookings proved the final straw for the airline, which operates almost 40% of the UK's domestic flights, after the government refused to provide a £100m emergency loan. More than 2,000 jobs will be lost and regional airports are also at risk.
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