UK stocks and pound tumble as Europe shuts borders

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·5 min read

Watch: Pound and FTSE 100 fall sharply as markets react to Europe's UK travel bans

Billions of pounds were wiped off the value of UK stocks and the pound tumbled on Monday, as panic set in about a new, more infectious strain of COVID-19 discovered in Britain.

Fresh restrictions were announced across much of Britain on Saturday as the government sought to contain the spread of the new strain discovered last week. Countries around the world then began to shut their borders to the UK for fear of importing the new COVID-19 strain. Stock markets around the globe fell sharply amid fears that the strain may have already spread.

The FTSE 100 (^FTSE) dropped 2% when the London Stock Exchange opened, wiping £33bn off the index. The sell-off deepened as trading continued and the bluechip index was down 3% by mid-morning. The more domestically-focused FTSE 250 (^FTMC) fell 3.5%.

Pressure on UK stocks began to ease by lunchtime after France’s transport minister said the country was looking at restarting the trade of goods with Britain. Still, the FTSE 100 closed down 1.75% and the FTSE 250 ended the day down 2%.

The FTSE 100 made up some ground after a slump at the open but remained down on the day. Photo: Yahoo Finance UK
The FTSE 100 made up some ground after a slump at the open but remained down on the day. Photo: Yahoo Finance UK

The pound was down 1% against the euro to €1.0917 (GBPEUR=X) by the end of the trading day in London. Sterling was down 1.3% against the dollar to $1.3342 (GBPUSD=X). Losses had been steeper earlier in the session.

Panic spread beyond the UK. European stock indexes dropped over 3% at one point and Wall Street sunk at the open in New York.

The global sell-off was triggered by developments in Britain over the weekend.

Prime minister Boris Johnson held an emergency press conference on Saturday announcing the return of lockdown-like conditions for millions of people in London, the South East, and the East of England. The new “Tier 4” restrictions were introduced to curb the rapid spread of a new variant of COVID-19, discovered last week. The prime minister said the new strain spreads up to 70% faster than the previous version of the virus.

On Sunday, multiple European countries closed their borders to Brits for fear of importing this new strain. This included France, which banned freight and people travelling from the UK. France said its ban would stand for an initial 48 hours.

READ MORE: UK economy in crisis as countries ban flights and freight from UK

The French decree shut down the Eurotunnel and much of the Port of Dover. The Port of Dover accounts for around a fifth of all trade with the EU, raising the prospect of shortages around Christmas.

“This is a key supply route for fresh produce at this time of year: the channel crossings see 10,000 trucks passing daily during peak periods such as in the run up to Christmas,” said Andrew Opie, director of food and sustainability at the British Retail Consortium.

Sky News reported Johnson would hold emergency talks on Monday morning to try and avert food shortages. Downing Street announced Johnson would hold a press conference later on Monday to address the crisis.

Britain's Prime Minister Boris Johnson speaks during a news conference in response to the ongoing situation with the coronavirus (COVID-19) pandemic, inside 10 Downing Street, London, Saturday, Dec. 19, 2020. Johnson says Christmas gatherings can’t go ahead and non-essential shops must close in London and much of southern England as he imposed a new, higher level of coronavirus restrictions to curb rapidly spreading infections. (Toby Melville/Pool Photo via AP)
Britain's Prime Minister Boris Johnson speaks during a news conference in response to the ongoing situation with the coronavirus (COVID-19) pandemic, inside 10 Downing Street, London, Saturday, Dec. 19, 2020. Photo: Toby Melville/Pool Photo via AP

Travel bans hit London-listed oil and airline stocks particularly hard. British Airways-owner IAG (IAG.L) trailed the FTSE 100, falling 8%. EasyJet (EZJ.L) dropped over 7% and Ryanair (RYA.L) lost 5%.

BP (BP.L) and Shell (RBSB.L) both fell around 5%, while mid-market oil explorer Premier (PMO.L) crashed over 11%. The price of oil (BZ=F) fell 4%.

READ MORE: Travel and transport stocks nosedive as countries ban flights from UK

On the continent, the CAC 40 (^FCHI) in Paris closed down 2.4% and the DAX (^GDAXI) in Frankfurt ended down 2.8%.

Wall Street joined the global move to risk off, despite lawmakers agreeing a new stimulus package after months of delays. The new package, worth $900bn, will see Americans receive $600 cheques from the government.

The S&P 500 (^GSPC) was down 1% by the time bourses shut in Europe. The Dow Jones Industrial Average (^DJI) had lost 0.4% and the Nasdaq (^IXIC) was down 0.9%.

Naeem Aslam, chief market analyst at Avatrade, said investors around the world were concerned about the new strain of COVID-19 discovered in the UK.

“Investors are paying more attention to the short-term deterioration in the coronavirus situation and forgetting that we have a coronavirus vaccine, which will have much positive influence on the upcoming quarter’s economic data,” he said.

Trader piled into bonds as they dumped stocks. Yields on UK gilts — government bonds — fell to record lows on Monday. (Yields move inversely to price, meaning low yields translate to high demand and high prices). Government bonds are traditionally seen as “safe haven” assets and are in high demand at times of crisis.

The Japanese yen, another safe haven asset, at one point rose 0.5% against the dollar (JPY=X).

Markets were mixed in Asia overnight. Japan’s Nikkei (^N225) fell 0.2% and the Hong Kong Hang Seng (^HSI) dropped 0.7%. On mainland China, the Shanghai Composite (000001.SS) rose 0.7% and the Shenzen Component (399001.SZ) rallied 2%.

Watch: 10 ways to Brexit proof your finances