European markets suffer further losses as early rally fizzles

European stock markets have suffered fresh losses after an early rally fizzled amid a mounting corporate and economic toll from the coronavirus pandemic.

Hopes for the UK chancellor’s business support package had driven the FTSE 100 index in London 2% higher in early trading, before renewed fears about the rapid spread of the virus pushed it more than 40 points lower to 5,100, a fall of 0.8%.

Among the biggest losers on the blue chip index were the catering company Compass, which issued a profit warning after being forced to close nearly half its business, holiday firm Tui and the cruise firm Carnival.

As EU leaders discussed how to combat the crisis in a day-long conference call, Germany’s Dax lost 0.6% and France’s CAC fell 0.64%. Italy’s FTSE MiB see-sawed and is currently trading 1.2% higher, while Spain’s Ibex hung on to gains of 2.9%. In Asia, stock markets had bounced back overnight, with Japan’s Nikkei closing up 5.8% and Hong Kong’s Hang Seng 0.87% higher.

Wall Street got off to a positive start, with the Dow Jones up 2.1% and the S&P 500 gaining 2.5%. Like London, however, the rally swiftly fizzled out and shares turned negative. The S&P 500 fell 0.3%, while the Dow slipped 0.1% and the Nasdaq lost 0.5%.

Investors rushed to buy the dollar, considered a safe-haven investment, and sterling fell by 1.5% against the US currency at one stage, to $1.2085.

As the virus swept through Europe, Italy was the first country to go into national lockdown last week, and has now been followed by France, Spain, Austria and Germany. In the UK, the prime minister Boris Johnson has urged the public to work from home and to stay away from pubs, clubs and restaurants.

At 4pm GMT on Tuesday, the UK chancellor, Rishi Sunak, along with the prime minister, is expected to unveil a rescue package for businesses threatened with collapse. Most companies in Britain do not have insurance cover for closures caused by infectious diseases, according to the industry body, the Association of British Insurers.

The rout on stock markets has prompted authorities in France, Italy, Spain and Belgium to ban short-selling on a number of stocks to shield some of Europe’s biggest companies from the sell-off. Short-selling means traders borrow company stock with a view to selling it and buying it back later at a lower price, and then pocket the difference. The practice tends to exacerbate panic selling.

The European Union’s market watchdog is stepping up surveillance of hedge funds and other short-sellers that may be taking advantage of the heavy selling in recent days. The European Securities and Markets Authorities has announced temporary measures that will force investors to hand over more information about their short-selling positions by cutting the threshold for disclosure in half.

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