FTSE 100 sinks in ‘Red Friday’ selling

The FTSE 100 was a major casualty on Friday in the wake of the discovery of a new COVID-19 variant in Africa.

In what should have been a day focused on the sales figures of Black Friday, all eyes were on global markets and the severe selling which earned the name ‘Red Friday’.

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“Forget Black Friday; today has been renamed Red Friday after the colour of share price screens as stocks slump globally on fears over a new Covid strain,” said Russ Mould, investment director at AJ Bell.

Lower oil prices were a major contributor to the FTSE’s weakness as heavyweights including Shell and BP sank.

Shell and BP were down 4.8% and 5.9% respectively in early trade as oil prices dropped over 6%.

“The drop in the oil price the market’s way of saying it is worried about a reduction in economic activity, something which also explains the slump in metal prices,” Mould highlighted.

“Markets are clearly speculating that a rapid spread of a more brutal Covid strain could once again derail the global economy. Banking stocks were also weak as they are closely tied to economic activity.”

“The flipside of falling commodity prices is that a weaker oil price should provide some relief in terms of inflationary pressures. That may cause central banks to be more cautious towards raising rates in the near-term, however it does depend on whether the new Covid strain causes significant disruption or can be contained as best as possible in a rapid manner.”

Travel shares were heavily hit as the uncertainty about how disruptive the strain could be smashed airlines. London-listed IAG was down as much as 20% before recovering.

“Headlines calling it the ‘worst ever variant’ have caused investors to panic and dump shares in travel-related stocks for fear that we’re going to see tough travel restrictions once again,” said Mould

“Wizz Air and British Airways owner International Consolidated Airlines both fell by approximately 18% in early trading, followed by a 14% drop in EasyJet and a 9% decline in Jet2.

“This is the worst possible news for airline operators as they were just starting to see a pick-up in trading, helped by people becoming more comfortable about travelling on a plane and routes like US/UK reopening.

“These companies have been under significant financial stress and will want to avoid having to go back to shareholders yet again to ask for more money to help see them through bad times, should we get new widespread travel restrictions.”

Economic recovery

The timing of the new variant couldn’t have been worse for economic recovery hopes as questions had already started to be asked about the robustness of the rebound as European infections rose.

“With Europe still battling with the surge of a fourth wave of the virus, there are now fears that the highly mutated Covid strain discovered in states in Southern Africa will prompt fresh shutdowns around the world in an attempt to stop its spread, leading to another drag on recovery,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

The FTSE 100 was trading down 2.7% at 7,104 just after 10am in London.

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