European stocks slumped yesterday at the end of a largely positive week for global equities, dragged down by fears of a second wave in coronavirus cases and the stalemate in Washington over a new stimulus package for the US economy.
In London, the FTSE 100 closed down 1.6% to 6,090.04 points; Frankfurt — DAX 30 ended down 0.7% to 12,901.34 points; Paris — CAC 40 closed down 1.6% to 4,962.93 points and EURO STOXX 50 ended down 1.0% to 3,309.29 points yesterday.
London’s benchmark FTSE 100 index finished the day down 1.6% after the UK government reimposed a quarantine for travellers from France and the Netherlands, prompting Paris to promise a “reciprocal measure”. The Paris CAC 40 index also retreated 1.6% and Frankfurt’s DAX 30 shed 0.7%. On Wall Street, the Dow was up marginally in late morning trading.
Both the S&P 500 and Nasdaq Composite spent most of the morning in negative territory, but remained within striking distance of record highs, however.
Asian markets ended mixed. In addition to Britain’s quarantine, Germany put all of Spain except on its quarantine list except for the Canary Islands.
“If European governments were hoping to salvage something tangible from the 2020 summer holiday season these recent setbacks are unlikely to help,” said Michael Hewson, chief market analyst at CMC Markets UK.
Shares in British Airways parent IAG tumbled 4.8%. The updated quarantine “is sadly yet another blow for British holidaymakers and cannot fail to have an impact on an already troubled aviation industry”, IAG said in a statement.
Equities were also retreating yesterday over fading hopes of a US stimulus deal being struck — and ahead of key weekend trade talks between the United States and China.
Hopes that Democrats and Republicans would cast aside their mutual animosity to stump up much-needed cash for struggling Americans have been key to supporting equities for weeks.
But they were dealt a blow Thursday when senators broke up for a summer recess, saying they would not return until early next month, while both sides continued to trade accusations over who was to blame for the impasse.
Democrats have called on Republicans and the White House to double their $1tn offer, having reduced their own proposal to $2tn from an initial $3.5tn.
The expectation remains that an agreement will at some point be found, particularly with the US election nearing and millions of Americans in financial crisis.
In a sign of the battle governments could have in rebooting their economies, data out of China Friday showed consumers were still reluctant to go out spending, with retail sales falling last month despite forecasts of a small increase.
While the drop was shallower than in June, Innes said it showed that it was “going to take more than stimulus and deep discounts on luxury products to get people shopping again”. At the same time, industrial production continued to grow, suggesting the economy’s recovery is being supported by the manufacturing sector.
A 1.2% increase in US retail sales in July compared to June, more modest than economists had been expecting, also dented sentiment about the strength of the economic recovery there.
Investors will be keeping a close eye on talks at the weekend between China and the US that will review the trade pact signed in January, though expectations are for the deal to be kept in place despite increasing tensions between Washington and Beijing.
British Airways owner International Consolidated Airlines, budget carrier easyJet and the London shares of tourism company TUI lost between 4.8% and 8.4%.
“This comes just as the travel and tourism sector was starting to get back on its feet after being decimated by the (novel coronavirus) pandemic,” said Craig Erlam, senior market analyst, UK & EMEA at OANDA.
Any reciprocation would mean that UK businesses that rely on tourists from France and others in the list such as the Netherlands and Malta, will also suffer, he said.
UK Prime Minister Boris Johnson resumed Britain’s lockdown easing but stiffened punishments for rule breaches including increasing fines for repeatedly refusing to wear face masks, and cautioned he would halt the easing again if needed.
Losses in London indexes were broad-based as falling crude prices weighed on oil majors, while a strong pound hurt internationally focused firms on the FTSE 100.
Global sentiment, meanwhile, took a hit as an unexpected slip in China retails sales was followed by US retails sales rising less than expected in July. In the eurozone, data confirmed the bloc suffered the biggest drop ever recorded in employment and gross domestic product in the second quarter.
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