Key Points
- FTSE 100 closing price of 6845.20, -2.32%
- Delta variant spread and UK isolation plans weigh on travel stocks
- “Freedom Day” turns into “Fear Day” as cases surge
- Johnson told to self-isolate but tests negative
- Oil declines after OPEC+ deal
- JPY, CHF strong on safe haven flows
- Bitcoin tumbles back towards $30,000
By Samuel Indyk
Investing.com – The FTSE 100 tumbled on Monday as rapidly increasing Covid cases dented UK Prime Minister Johnson’s hopes of a “Freedom Day” to be proud of. The government eased its final set of Covid restrictions on Monday, meaning masks are no longer required, people can meet in unlimited numbers indoors and cinemas and nightclubs can operate at full capacity.
However, the easing of restrictions comes amid surging cases with over 48K people testing positive reported on 18th July. The government will be hoping that the link between cases and hospitalisations has been weakened enough by vaccines so the health service is not overwhelmed by a surge in people requiring treatment.
The surge in cases in the UK is also leading to record numbers of people being required to self-isolate, potentially harming the recovery as retail and haulage industries have warned about a shortage of workers.
Meanwhile, a resumption of normalised international travel looks further away than it has for months.
“Optimism which had been on the horizon just a few weeks ago has again been obscured by dark clouds, especially with the snap decision to enforce a 10 day quarantine for arrivals from France,” writes Hargreaves Lansdown (LON:HRGV) senior investment and markets analyst Susannah Streeter.
“With the rules for teenagers also unclear, many families, once hopeful for a holiday, are now putting away their suitcases, settling for a summer of staycations and day trips.”
Airlines such as British Airways parent IAG (LON:ICAG), EasyJet (LON:EZJ), Ryanair (LON:RYA) and Wizz Air (LON:WIZZ) all tumbled. Cruise operator Carnival (LON:CCL) dropped to its lowest level since February.
Jet engine manufacturer Rolls-Royce (LON:RR) saw its shares decline given its need for its engines to clock up miles to make revenue.
Energy companies didn’t perform any better as oil prices declined in the wake of the OPEC+ decision. Royal Dutch Shell (LON:RDSa) and BP (LON:BP) both shed over 4% after the cartel agreed to boost output by 400,000 bpd per month from August. The UAE and Saudi Arabia reached an agreement over the UAE’s baseline number going forward, meaning they will be able to produce more oil in the future.
Further weighing on Brent and WTI was the uptick in coronavirus cases which could stall the recover and sap demand for oil, especially if the restrictions continue to dampen international travel.
In FX markets, safe haven currencies such as the JPY and CHF benefitted from the general risk-off tone. GBP was weak with GBP/USD dropping below 1.37 on fears the UK is making a policy mistake by opening up too soon.
Further weighing on GBP/USD was comments from Bank of England’s Jonathan Haskel, who said that reducing stimulus was not the right option for the foreseeable future.
“For the foreseeable future, in my view, tight policy isn't the right policy,” Haskel said in a speech organised by the University of Liverpool.
The comments are at odds with other members of the rate-setting Monetary Policy Committee. Last week, Michael Saunders and Sir Dave Ramsden both warned that the time to reduce stimulus may be approaching.
Cryptocurrencies were weak with Bitcoin falling back towards $30,000 and Ethereum trading firmly below $2,000 amid the broad risk-off tone. Some technical analysts have highlighted a worsening outlook.
“If Bitcoin falls below the $30,000 level, momentum selling could look for an easy test of the $28,900 level,” said Edward Moya, Senior Market Analyst at OANDA.
“That could be the line in the sand for defending a deeper plunge toward $25,000.”