London close: Stocks end week with deep losses as investors look to weekend

London stocks finished well below the waterline to round off a week of heavy losses on Friday, as investors remained wary of what news headlines the weekend could bring, amid concern that a coronavirus-fuelled global economic recession might be on the cards.

The FTSE 100 ended the session down 3.39% at 6,566.00, and the FTSE 250 was 2.29% lower at 19,330.92.

At the same time, sterling was weaker against both of its major trading pairs, last losing 0.9% against the dollar at $1.2771 and falling 0.85% on the euro at €1.1615.

A key manufacturing survey was due out in China on Saturday, with analysts predicting a very sharp drop in activity, while South Korean officials were expected to release the results of testing on the members of a Shincheonji church, which is understood to harbour a large number of cases.

"Do you want to be long going into the weekend, even at these lower prices, when any number of worrying headlines may potentially hit the screens?," analysts at Rabobank mused.

Overnight, the World Health Organisation said that the caseload of coronavirus cases outside of China had increased by 746, compared to an increase of 459 the day before, amid news of a first case in Nigeria and of the death of Iran's ambassador to the Vatican.

In London, the top flight index was also pushing further into so-called "correction" territory, just like its peers around the world, having broken below the threshold of a 10% drop from its most recent peak the day before.

Regarding the potential impact of the Covid-19 virus, in an interview with Sky News, Bank of England governor Mark Carney said that: “It's too early to tell what it means for the UK, or its magnitude.

“But the most important thing is to make sure the system is functioning - we're very confident about that, and we're on top of it.”

Some traders, however, disagreed with Carney’s assessment.

“With the coronavirus having now breached the Chinese borders and spreading in some cases despite no clear connection to breakout areas, investors have finally accepted the reality of the situation," said Oanda senior market analyst Craig Erlam.

“Suddenly the threat of a pandemic on global supply chains and the economy has set in and investors are fearing the worst, while not really knowing exactly what that is.”

On Thursday, US markets closed sharply lower, with the S&P 500 registering its largest percentage point drop in eight and a half years and on course for its worst week since 2008 amid a spike in volatility.

According to Lori Calvasina at RBC Capital Markets, since the 1930s the median and average declines in the S&P 500 around recessions had been between 24% and 30.% from its most recent peak.

Additionally, according to Reuters Breakingviews, three out of the four flu pandemics over the last century were followed soon after by economic recessions in the United States.

On the UK economic front, survey data remained conspicuously resilient despite the spreading coronavirus, although the same could not be said of Japanese unemployment data released earlier.

GfK's UK consumer confidence index edged up by two points to -7 in February, coming in better than the consensus forecast for a reading for -8.

Mortgage lender Nationwide reported a 0.4% month-on-month improvement in house prices to reach £216,092, or a 2.3% year-on-year rise, which was bang on market expectations and up from 1.9% in January.

It was also the strongest reading in 18 months.

In equities, British Airways-owner IAG closed down 8.42% after it declined to provide financial guidance to the markets.

The group told shareholders that due to the "ongoing uncertainty on the potential impact and duration of Covid-19, it is not possible to give accurate profit guidance for FY 2020 at this stage.”

In remarks made to the BBC, IAG chief Willie Walsh said: "In the first three weeks of February the main impact was in Asia … It looked like it was stabilising but earlier this week we had cases in Italy and we had a significant fall-off in demand in Italy and some other markets as well.”

Elsewhere in the travel and leisure space, budget airline easyJet slipped 0;86% after it said it would cancel flights and introduce emergency cost cuts after the coronavirus outbreak caused a drop in demand for flights in and out of Italy and across Europe.

It said the fall in demand and load factors for Italy was significant, and that business was weaker in other European markets.

EasyJet said it would cut administrative spending, freeze recruitment, promotion and pay; and postpone non-critical capital spending.

It would also offer staff unpaid leave, stop non-mandatory training, press suppliers for price cuts and reorganise summer 2020 flights to maximise revenue when the market recovers.

Aircraft engine maker Rolls-Royce rose 3.23% after it narrowed its operating losses, but still took an exceptional charge of £1.36bn on its troubled Trent 1000 engine.

Reported group operating losses came in at £852m from a loss of £1.1bn a year earlier, while underlying operating profit rose 25% to £808m after a strong fourth quarter.

Market Movers

FTSE 100 (UKX)6,580.61-3.18%
FTSE 250 (MCX)19,330.92-2.29%
techMARK (TASX)3,764.63-2.91%

FTSE 100 - Risers

Rolls-Royce Holdings (RR.)620.00p3.23%
Kingfisher (KGF)189.35p1.77%
Carnival (CCL)2,435.00p1.59%
BT Group (BT.A)141.62p1.52%
Johnson Matthey (JMAT)2,511.00p1.21%
Sainsbury (J) (SBRY)195.75p0.88%
Morrison (Wm) Supermarkets (MRW)171.25p0.71%
Flutter Entertainment (FLTR)8,266.00p0.49%
Just Eat Takeaway.Com N.V. (CDI) (JET)6,815.00p-0.22%
Lloyds Banking Group (LLOY)50.20p-0.30%