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Highlights
- The FTSE 100 started off the week in a sombre mood, losing about 1%
- Joe Biden is expected to address the nation on the Afghan issue, which could play a huge role in how the financial markets would perform over the next few days.
- The spread of delta variant could lead to further restrictions and shutdowns, which may hamper the economic recovery process.
The FTSE 100 started off the week in a sombre mood, losing about 1% on 16 August 2021, its worst session in nearly a month, as weakness in commodity prices plummet heavyweight energy and Oil & mining stocks, however, Ultra Electronics share prices rise after it agreed to a takeover deal.
FTSE 100 has surged about 11% so far this year and recuperated nearly 28.5% from its lowest in October 2020, helped by the reopening of economies and dovish central bank policies. However, the increasing cases of new delta variant and increasing inflation panic in Britain that could lead the central bank to pull back support have restricted further gains, pushing the FTSE 100 index to underperform most of its developing market peers recently.
In the UK, for the coming week, the investor reaction will be based on the release of the latest unemployment, inflation and retail sales data.
The British Prime Minister Boris Johnson is also planning to host a virtual meeting of G7 leaders to address the aggravated situation in Afghanistan and would try on evacuating UK citizens and others from Kabul.
The global share market traded on red after have a surprisingly sharp slowdown in China, shaken confidence in a vaccine-led recovery.
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Let us explore 5 factors that can affect FTSE in the coming few days:
Afghanistan Crisis
Taliban declared a successful invasion of Kabul on Sunday and effectively replacing the Afghanistan government. The worst situation arose after the US, and its allies withdrew their troops from Afghanistan for the first time in a decade.
In the coming days, British Prime Minister Boris Johnson is a planning to host a virtual meeting of G7 leaders to address the aggravated situation in the country. Britain and France agreed to work together at the UN Security Council with a motive to recognize any future Afghan government and to prevent a philanthropic and refugee crisis.
The UK had initially pledged 900 soldiers to support the evacuation in Kabul. On 16 August, the UK government also announced that it would ease border rules to allow shelter seekers to flee to the country without a passport.
The businesses would not be sure of the working conditions If Taliban remains in power, and many investors and companies may pull out of Afghanistan, which will affect the country’s economy.
The financial market of various countries would be affected due to the unrest in Afghanistan, which is already visible across the world, with investors cautiously looking at how the world leaders would react to the situation.
US President Joe Biden is expected to address the nation, which could play a major part in how the stock markets would be affected and perform over the next few days, as other major leaders would be looking at the US to determine action.
Delta Cases
The rising cases of delta variant have sent shock waves through the global economy, raising concerns among investors about its potential impact on the stock market and the global economy.
The Delta variant of the Coronavirus has been very much in focus in recent days as it continues to spread across the world. Despite successfully now vaccinating over two thirds of British adults, the country is mat be hit by a potential third wave of covid-19.
According to Public Health England, the Covid-19 cases in UK due to the Delta variant has crossed 250,000 from 216,249, increased by 17% from last week. However, there has been no consequent rise in the number of hospitalizations due to covid-19 despite a high and rising number of infections, which indicate vaccines are effective against the highly transmissible delta variant.
Countries such as China, Australia and Japan are imposing strict restrictions to keep the variant away. The fear of delta variant could lead to further restrictions and shutdowns, which may hamper the economic recovery process.
Related Article: Covid trouble continues: UK sees 36,800 new Delta variant cases
Disappointing Chinese data
The disappointing set of economic data in China has started impacting the global markets. The figures released by the National Bureau of Statistics revealed that development in China’s industrial production and retail sales reduced sharply in July flooding and a rise in covid cases.
According to data, Industrial production surged by 6.4% on the year following an 8.3% increase in June, which was below the expectations of 7% growth. The retail sales increased by 8.5%, much lower from the 12.1% growth reported in June and below the expectations of a 10.9% growth.
The falling commodity prices hit heavyweight energy and mining shares as Rio Tinto (LON: RIO), Glencore (LON: GLEN), Royal Dutch Shell (LON: RDSA), Anglo American (LON: AAL) and oil major BP (LON: BP.) dragged down the FTSE 100 index.
UK Defence deals
On Monday, the Defence firm Cobham, which was taken over last year by US private equity house Advent in a £4 billion deal, said it had agreed to a takeover by Ultra Electronics in a deal valuing at £2.6 billion and setting out commitments aimed at allaying any potential concerns over national security and safeguard UK jobs. The shareholders of Ultra will get 35 pound per share, in line with a price offered in July.
Also, Meggitt, which is its rival defence group, disclosed its plans of agreeing to a £6.3 billion bid from the US business Parker-Hannifin. It stated that the takeover panel of the stock market would be setting a deadline for TransDigm, which is another one of its rivals, for the purpose of making its own £7billion bid binding.
These deals have fuelled fears among leaders, industry experts and Investors as the UK may loss sensitive intellectual property that is critical to national security.
Related Article: 5 shares that can be bought after Ultra Electronics and Meggitt takeover deals
UK employment
The number of employees on UK businesses payrolls has moved near the pre-pandemic level; as the government lifted the covid-19 restrictions, the pay growth rushed to a record high.
The UK economy extended its recovery from its 2020 plummet; payrolls surged by 182,000 in July to 28.9 million, still 201,000 lower than pre-pandemic level. According to the Office for National Statistics (ONS), the unemployment rate reduced to 4.7% in the three months to June, its lowest since the three months to August 2020. At the same time the annual growth in average pay was recorded at 7.4%.
CONCLUSION
The stock prices and indexes get impacted by different factors. The evidence that rising Delta variant cases across the country are causing fear and anxiety, affecting how the individual, businesses and economy works. Though the above-mentioned factors could impact the markets in the coming days, there will be many which will be sudden and unexpected, impacting the market movements.
