FTSE falls 2% on gloomy Fed and fears of second virus wave

The FTSE 100 has fallen after a gloomy outlook from the US Federal Reserve checked stock market optimism about the economic recovery from the slump caused by the coronavirus pandemic.

The FTSE 100 has fallen after a gloomy outlook from the US Federal Reserve checked stock market optimism about the economic recovery from the slump caused by the coronavirus pandemic.

The UK blue-chip index fell 150 points, or 2.4%, to 6,181 after the Fed forecasted the US economy would shrink by 6.5% in 2020, with unemployment standing at 9.3% at the end of the year. UK ‘mid-cap’ stocks on the FTSE 250 fell 2.8%.

That knocked optimism over the speed of the recovery of the US economy that had been spurred by the surprise addition of 2.5m jobs in May, confounding expectations of an 8m fall.

‘There had been a growing disconnect between the economic reality that the global economy is facing and the risk-on rally in stock markets,’ said Fiona Cincotta, analyst at City Index.

‘The Fed’s comments may have given the markets the dose of reality that was needed to start to reduce the disconnect.’

Fears of a second wave of coronavirus cases also weighed after a rise in new cases in Texas and Florida and a spike in hospital admissions in California.

‘There is a new wave coming in parts of the country,’ Eric Toner from the John Hopkins Center for Health Security told Bloomberg. ‘It’s small and it’s distant but so far, it’s coming.’

On the FTSE 100, cruise ship operator Carnival (CCL) slumped 7.5% to £12.53 while aircraft engine maker Rolls Royce (RR) was down 6.3% at 331p, leading ‘cyclical’ stocks, more sensitive to the health of the global economy, lower.

The oil price slumped, with Brent crude sliding 3.6% to $40.18 a barrel, knocked by fears over the speed of the global economic recovery from the coronavirus and a jump in US crude stockpiles. Shell (RDSB) fell 4.1% to £13.01 and BP (BP) was down 4.1% at 330.3p.

3i slips

Among London-listed investment companies private equity giant 3i Group (III ) slipped 35p or 4% to 837.5p, though rival HgCapital Trust (HGT ) added 3.5p or 1.5% to 236p.

Real estate investment trusts came under pressure with BMO Commercial Property Trust (BCPT ) off 4p or 5.1% at 73.9p and AEW UK (AEWL ) sliding 5p or 7% to 69p. 

UK-focused trusts retreated: BlackRock Smaller Companies (BRSC ) down 46p or 3.4% at £13 and struggling Temple Bar (TMPL ) interrupting its recent value spurt with a 28p or 3.3% drop to 824p. 

Artemis Alpha (ATS ) bucked the trend rising 6.5p or 2.3% to 287p.

Trusts invested overseas generally fared better with Aberdeen New Dawn (ABD ) up 5p or 2.1% to 243p and global value fund Scottish (SCIN ) 10p or 1.4% better at 736p.

But Templeton Emerging Markets (TEM ) sagged 23p or 3% at 744.5p.

BH Global (BHGG ) gained 50p or 2.8% to £18.50 as the Brevan Howard hedge fund once again lived up to its defensive credentials, although sister fund BH Macro (BHMG ) eased 28.7p or 0.9% to £33.61.

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