Time for a quick recap

Fresh worries over the Covid-19 pandemic have hit shares on both sides of the Atlantic today.

Britain’s FTSE 100 tumbled 3%, in its worst fall for almost two weeks, with retail stocks, travel firms and asset managers among the big fallers. European stocks also saw heavy falls, with Germany’s DAX losing 3.4%.

Wall Street has also taken a thumping, after a jump in coronavirus cases in several states. The Dow is currently 2.2% lower at 25,559, a loss of 596 points.

Craig Erlam, senior market analyst at OANDA Europe, blamed fears of a second-wave of infections.

There is growing concern about the number of new cases in countries that are in the midst of lifting lockdown measures. The road to the new normal was always going to be full of potholes and reopening will inevitably come at the cost of rising numbers of infections but how this is managed will be key to whether they’ll be a success or lcokdown will return in full.

Germany has been widely commended for its handling of the first wave of the crisis, which will make its handling of the latest increase all-the-more interesting. Authorities in Beijing are already claiming to have its outbreak under control which is quite remarkable given how rapidly it was spreading in its early days.

The selloff picked up pace after the IMF slashed its forecasts for this year, and 2021. It predicts an even sharper global downturn, and a more muted recovery.

Traders were also jolted by a report that Washington could impose new tariffs on EU and UK products - even gin! - as part of an escalated trade dispute.

Oil also had a bad day, dropping sharply after data showed a pick-up in US oil inventories.

Economists see little sign of a V-shaped recovery in the UK - the smart money is on a “Nike swoosh”, with consumers likely to be cautious about returning to the shops.

Some 4,500 jobs are being cut at aviation services firm Swissport, with 8,000 more possibly being saved at Tata Steel.

Goodnight. GW

Global oil prices tumbled by $2 a barrel this afternoon after data from the US Energy Information Administration (EIA) revealed that stockpiles of US crude climbed to a third consecutive record high last week.

The EIA’s data punctured the oil market’s buoyant run to $43.83 a barrel earlier this week, highs not seen since early March before major economies brought in strict Covd-19 lockdown measures.

The price of Brent crude tumbled below $40 a barrel and US oil prices fell over $2 to $38.33 a barrel.

Oil market analysts had expected US crude stocks to rise by less than 300,000 barrels last week but the EIA reported a 1.4 million barrel hike for last week to a fresh record high of 540.7 million barrels.

The glut of oil left in the wake of global coronavirus lockdown measures reignited fears among oil traders that the market remains oversupplied despite the Opec oil cartel’s historic deal to curb oil production.

In one bright spot for US oil traders, the EIA data showed that the country’s gasoline stocks fell by 1.7 million barrels last week to 255 million barrels, a clear sign that demand for transport fuels is beginning to recover.

Oof! A late sell-off has left the FTSE 100 languishing deeper in the red at the close of trading.

The blue-chip index of leading shares closed 3.1% lower at 6,123, a loss of 196 points. That wipes out the last 10 day’s gains, as fears of a new wave of Covid-19 cases sweeps the markets.

Airline group IAG was the worst performer, ending the day down 8.5%. Medical equipment maker Smith & Nephew lost 7.4%, hotel group Whitbread shed 7% and DIY chain Kingfisher fell 6%.

The other European markets did just as badly, with the Stoxx 600 down 2.8%.

David Madden of CMC Markets sums up the day:

Equity markets are deep in the red this afternoon as health concerns are weighing on sentiment. Yesterday’s update from Dr Anthony Fauci, a health advisor to the US government, spooked traders as he described the increase in Covid-19 cases in some US states as ’disturbing’. The statement comes as certain US states, such as California, have seen an increase in the infection rate, which is a result of loosening lockdown restrictions. The medical expert wasn’t extremely pessimistic as he added there might not be a need for a total lockdown. As of 4 July, the UK will relax its social distancing policy from 2 metres to 1 metre, in addition to that, there some lockdown restrictions will be eased too. This should provide assistance to the UK economy, but there are worries we will see an increase in the infection rate in the months ahead.

Earlier today it was announced the US are considering introducing tariffs on $3.1 billion worth of goods from the EU and the UK. It would appear that President Trump is picking a trade fight with Europe in an effort to distract US citizens from the domestic health situation.

The IMF now predicts the global economy will contract by 4.9% in 2020. In April, the body projected a 3% fall in global growth. The negative revision to the outlook wasn’t a shock since the organisation recently said its forecast will be reduced.

Even the Nasdaq is being dragged down by today’s sell-off.

The tech-focused index is down 1% today -- a rare sight, given it has surged by 30% this quarter and is actually up 11% this year despite the pandemic.

The tech giants are feeling a little pressure, with Microsoft down 0.8% and Apple losing 0.5%. They’ve been a major factor behind the recent rally, and make up a surprisingly large share of the overall market.

The US stock market has followed Europe into the red at the start of trading.

The Dow Jones industrial average has lost 256 points, or almost 1%, to 25,899, as sentiment is dented by the jump in Covid-19 cases in several US states including Arkansas, California and Texas.

This hasn’t helped the mood in the City, either, where the FTSE 100 is currently down 125 points of 2% at 6195. On track for its worst day in nearly two weeks.

Newsflash: The International Monetary Fund has slashed its growth forecasts, after concluding that the coronavirus is having an even worse impact than previously thought.

In its new World Economic Outlook, the Fund predicts global output will shrink by 4.9% this year, worse than the 3.0% decline expected in April.

The Fund now expects US GDP to fall by 8.0%, with the eurozone and the UK both contracting by 10.2%. Those are (obviously) desperately deep slumps.

Disappointingly, the IMF has also cut its growth forecast for 2021. It now only expects world GDP to rise by 5.4%, down from 5.8% two months ago.

This will wipe a staggering $12tn (or £9.6tn) off global output over 2020 and 2021.

The Fund says:

There is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns.

Here’s the full story:

The IMF’s latest growth forecasts, due in two hours, will shed new light on whether the world economy may achieve a V-shaped recovery, or something rather more lethargic.

Professor Costas Milas of the University of Liverpool suspects Britain’s recovery will be a long haul:

As far as the UK is concerned, current indicators (based on Google mobility data) point to a ‘Nike swoosh’ recovery. That is, UK GDP, which dropped steeply in the beginning of 2020, appears to be following a very slow rebound towards its pre-virus level (December 2019) as evidenced by the ‘retail and recreation’, ‘grocery and pharmacy’ and ‘workplaces’ mobility.

In fact, all three indicators suggest a slow rebound towards the baseline (the median value of the January to early February period).

Pau Morilla-Giner, Chief Investment Officer at London & Capital, also predicts a Nike ‘swoosh’:

“A V-shaped recovery is impossible unless the rebound in consumer spending is V-shaped which is unlikely.

“Given China is the birthplace of the pandemic, it is likely a canary in the coal mine for the rest of world. In March, retail sales were down 16% compared to March 2019. They are a figure to monitor closely as China keeps reopening its economy.

As if Covid-19 wasn’t enough, investors are also disconcerted by the prospect of a new trade dispute between America and Europe.

Bloomberg is reporting that Washington is considering imposing new tariffs on $3.1bn of exports from the UK, France, Germany and Spain. Such a move could fuel transatlantic trade tensions just as economies slowly reopen from lockdown this summer.

They say:

The U.S. Trade Representative wants to impose new tariffs on European exports like olives, beer, gin and trucks, while increasing duties on products including aircrafts, cheese and yogurt, according to a notice published late Tuesday evening. The statement lays out a month-long public comment period ending July 26....

If the U.S. follows through with its plan, it could hammer European luxury brands like Givenchy and Hermes -- which produce leather goods -- and Remy Cointreau and Pernod Ricard, which make cognac and champagne. LVMH Moet Hennessy Louis Vuitton would be particularly vulnerable because it produces a wide array of these products.

Tariffs on British gin could increase U.S. prices at peak season for gin-and-tonics, potentially hurting British spirits companies like Diageo Plc, the London-based maker of Tanqueray; James Burrough, the maker of Beefeater gin; and William Grant & Sons, the maker of Hendricks gin.

In a new blow to the UK economy, airport ground handling company Swissport is planning to cut more than 4,500 jobs.

The move follows the mass cancellation of flights since the pandemic struck, as my colleague Jasper Jolly explains:

The company, which handles services such as passenger baggage and cargo for airlines, on Wednesday began a consultation process that is expected to result in 4,556 workers being made redundant, more than half of its 8,500-strong UK workforce.

Swissport was already under pressure at the start of the crisis when the collapse of the regional airline Flybe put smaller UK airports at risk. However, the grounding of the vast majority of flights since the UK’s lockdown began has all but wiped out revenues for many airlines and their suppliers.

Some of Swissport’s largest operations include services at London’s Gatwick and Heathrow airports, Manchester, Newcastle, Edinburgh and Glasgow, alongside a host of regional airports.

The company declined to give details of where the job losses would fall. Swissport employed about 64,000 workers globally before the crisis.

Four years on from the Brexit referendum, the mighty British pound is diminishing towards becoming a mere emerging market currency.

At least, so claims Bank of America analyst Kamal Sharma. In a research note published this week, Sharma argued that investors are losing their trust in sterling (which was worth around $1.50 before the EU vote, vs $1.25 today).

The FT has the details:

In the four years since the UK voted to leave the EU, trading conditions in the pound and the big swings in exchange rates make it a better match with the Mexican peso than the US dollar, said Kamal Sharma, a currency analyst at BofA.

He said that movements in the currency since the June 2016 Brexit vote have become “neurotic at best, unfathomable at worst”.

The bank’s analysts noted that the difference between rates at which investors are willing to buy and sell sterling remains bigger than in other major currencies, even after the broader market has settled in the wake of the coronavirus-related panic in March.

Kathleen Brooks of Minerva Analysis thinks Sharma is right.

She told Sky News that the pound has never really recovered from the Brexit vote, and was one of the major currencies to sell off when the pandemic struck.

Brooks points out:

We’ve really seen a lot more volatility in the pound than we have in the other major currencies such as the US dollar, the Japanese yen, the euro even, and the Swiss franc.

European stock markets are sliding deeper into the red.

After an hour’s trading, the FTSE 100 is now down 1.8% or 114 points at 6,205. That more than wipes out yesterday’s gains, and knocks shares to their lowest levels in nearly a week.

Germany’s DAX and France’s CAC are also down around 1.3% each.

Concerns about a second wave in Covid-19 cases seems to be on the rise this morning, following the spike in cases in seven US states yesterday.

Connor Campbell of SpreadEx comments:

In the last 24 hours 7 states have reported record coronavirus hospitalisations – Arizona, Arkansas, California, North Carolina, South Carolina, Tennessee and Texas. The Lone Star state also saw an all-time high case increase on Tuesday, something that has become almost a daily occurrence.

It is a damning indictment of the Trump administration, and its laissez-faire attitude towards the pandemic from the off. This isn’t a second wave, but rather a continuation of the first.

Understandably investors were rather worried about this news, especially since it follows on from the recent outbreak in Beijing, a new cluster of cases in Tokyo, a record one-day total for new cases in Mexico and Monday’s reports that Germany’s R rate has crossed the crucial 1 level due to 1000s of cases at an abattoir.

In the UK, health leaders have urged the government to prepare for a second wave of coronavirus infections:

The lockdown has given people plenty of time to cook and eat at home (as well as drink), and Premier Foods has reaped the benefits.

The company behind Sharwood’s spices, Be-Ro flour and Bisto gravy granules says it has seen a surge in demand for some products in recent months, since people were banned from the office canteen or local restaurant.

Alex Whitehouse, chief executive officer, says:

“During the outbreak of COVID-19, food has been identified by the Government as a key industry and we feel privileged to play our part in keeping the nation fed.

One of the most prevalent trends we have seen during the lockdown is that Britain has got cooking again, with particularly high levels of demand for items relating to meal preparation, including cooking sauces, gravy and baking ingredients.

Business conditions in France have improved this month, as Covid-19 lockdown measures have eased.

Statistics body INSEE says its business climate index has recovered from May’s plunge, due to a pick-up in confidence at factories and service sector firms.

The index reached 77.8 this month, up from 59.9 in May. However, the situation remains extremely weak, as this chart shows:

INSEE explains:

In June 2020, the business climate has recovered very clearly, in connection with the acceleration of the lockdown exit....

At 78, the business climate has exceeded the low point reached in March 2009 (70), but remains far below its long-term average (100).

This sharp rise in the overall synthetic indicator is explained in particular by the more optimistic view that companies have on their activity prospects, in all sectors, under the effect of the the lockdown exit.

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

Investors continue to be torn by optimism that the world economy is healing, and anxiety that a surge in Covid-19 cases could trigger fresh lockdowns and a deeper recession.

Overnight, Asia-Pacific stock markets have nudged their highest levels since early March, when the pandemic was gripping global markets.

South Korea’s Kospi 200 is the best performer, jumping by 1.8%, while Australia’s S&P/ASX gained 0.2% and China’s CSI300 index picked up 0.3%.

This has pushed the MSCI index of Asia-Pacific shares outside Japan up 0.5% to its highest since pandemic lockdowns first cratered markets in early March, Reuters reports.

Jingyi Pan, market strategist at IG, says there are uncertainties of the lingering impact from the global pandemic, but....

Despite evidence of virus surges across the US, the market’s faith in reduced likelihood of the return of massive lockdowns had enabled investors to largely shrug off that concern.

Europe, though, is expected to dip around 0.6% at the open, after seven US states reported their highest coronavirus patient admissions in the pandemic so far.

Arizona, Arkansas, California, North Carolina, South Carolina, Tennessee and Texas –which also confirmed a record daily case increase on Tuesday – each admitted record numbers of infected people to hospital, the Washington Post reported.

California saw record infections, too, with more than 5,000 in a single day for the first time, as Arizona, Nevada and Missouri also reported record case increases.

Fiona Cincotta of City Index explains:

Reopening optimism is showing signs of fading with European stocks pointing to a lower open following two days of gains. The same stubborn optimism that saw Asian stocks creep up to 4-month highs overnight is not being felt here in Europe.

A quiet economic calendar will leave risk sentiment in the driving seat.

White House health adviser Dr. Anthony Fauci has also focused minds on the crisis, by warning that parts of the US are beginning to see a “disturbing surge” of Covid-19 cases.

Shares are being supported by some better-than-expected surveys of purchasing managers released yesterday, showing that the UK’s factory sector has stabilised and France’s companies were growing again.

Hopes of another US stimulus package are also putting a floor under shares. US treasury secretary Stephen Mnuchin has suggested new legislation could be brought forward next month, telling reporters:

“We’re talking about a bunch of different ideas that we may need to do in another bill, and we want to take our time and make sure we’re thoughtful.

“So whatever we do it’ll be much more targeted, much more focused on jobs, bringing back jobs and making sure we take care of our kids.”

Coming up today

The International Monetary Fund will issue new economic forecasts later today, which may give an even gloomier view of the outlook than back in April.

As Bloomberg predicts:

Two months after its dire predictions of the steepest recession in almost a century, the International Monetary Fund will release new global economic forecasts this week that will probably look even worse.

Officials at the Washington-based Fund have warned that a revised outlook due on Wednesday may feature a more pessimistic view than in April. Back then, they said the “Great Lockdown” caused by the coronavirus would force a global contraction of 3% this year.

A gloomier forecast might reflect their assessment of the severity of damage caused by the widespread shutdown in activity. The U.K. economy, for example, instantly shrank by a fifth in April alone.

We also get new business confidence reports from France and Germany, which may show a pick-up in morale.

The agenda

• 7.45am BST: French business confidence for June. Expected to rise to 80 from 70.
• 9am BST: IFO survey of German business climate for June. Expected to rise to 85 from 79.5
• 2pm BST: IMF releases updated World Economic Outlook
• 3.30pm BST: US weekly oil inventory statistics