Rishi Sunak’s “colossal bailout” was not enough to stabilise the markets on Wednesday, as global governments seem powerless in the face of falling stock exchanges.
The FTSE 100 continued its downward slump with a more than 5% drop at about 9.30am on Wednesday, wiping around £68 billion off the value of London’s biggest companies.
Further spending announcements and guarantees by the US Government also failed to enthuse investors, who are becoming increasingly worried on where to safely put their money. The FTSE 100 closed down 214.32 points, or 4.1%, at 5080.58.
Traders are struggling to figure out what the future holds for different sectors and how the business landscape will look once the pandemic ends, with transport and travel suffering hard.
On Tuesday, the Chancellor announced Government-backed loans worth £330 billion to shore up companies alongside a business rates holiday for firms in the retail sector.
The FTSE 100 had managed to make a 2.8% gain on Tuesday, rare in recent weeks, before Mr Sunak’s announcement.
Markets are vulnerable to further falloutFiona Cincotta, City Index
But Fiona Cincotta, an analyst at City Index, said: “Despite Chancellor Rishi Sunak’s colossal bailout package, the markets’ response is very concerning.
“The fact that the FTSE has failed to hold on to any of the gains quite simply suggests that this is not enough.”
Part of the problem, Ms Cincotta suggested, is that there has not been a global economic response.
“As a result, the markets are vulnerable to further fallout,” she added.
Big fallers included cruise business Carnival, down 34%, National Express, down 31%, and William Hill, down 24%. But Cineworld was up 151% and Marston’s recovered 44% after heavy falls on Tuesday.
Experts have warned against assuming the market will quickly recover what it lost. The FTSE 100 is 60 days into its fifth bear market – where the index drops 20% from recent highs – in history.
The previous four have lasted 497 days on average, and it has taken 1,765 days to reach the pre-bear highs, according to data from AJ Bell.
Only in 1998 did markets recover quickly from the downturn.
Russ Mould, an investment director at AJ Bell, said the US Federal Reserve has few weapons left to supercharge the economy as it has already slashed interest rates to 0%.
The actual hit from the Covid-19 outbreak is also much higher than in 1998 when the downturn was caused by an Asian and Russian debt crisis.
Mr Mould added: “The counter-argument is that governments’ fiscal response will ultimately prove so substantial, and the economic impact of the viral outbreak and self-isolation lockdown sufficiently fleeting, for a rapid recovery in corporate profits and confidence to ensue very quickly.”
Meanwhile, the price of oil continues to tumble. The US standard, West Texas Intermediate (WTI), fell to 25.11 US dollars a barrel, its lowest point since 2003. Brent crude, the international standard, hit 27.56 dollars.