The FTSE 100 index continued the rally that was started yesterday when the index rose by more than 2.30%. The index joined other world indices that have been rallying since yesterday. For example, the Dow and Nasdaq indices rose by more than 7%. DAX and CAC futures too have jumped by more than 1%.
The index rose even after it emerged that Boris Johnson, the UK prime minister had been put in intensive care unit as his health deteriorated. This situation opens a significant crisis in the country at a time when it is battling the Coronavirus pandemic.
Another big risk that has emerged is that retail companies have started filing for bankruptcy. A while ago we wrote that BrightHouse and Carluccio’s had filed for bankruptcy. Yesterday, Debenhams, another clothing retailer moved into administration. The collapse of the iconic retailer puts more than 22,000 staff at risk of losing their jobs.
Debenhams was in trouble even before the current crisis happened. More people are now buying clothes online leading to a decline in its same store sales. The company has also been making losses. Just last year, it was bought by a group that included GoldenTree and Silver Point after it defaulted on its obligations. In a statement, the company said:
This move will protect Debenhams from the threat of legal action that could have the effect of pushing the business into liquidation while its 142 UK stores remain closed in line with the government’s current advice regarding the Covid-19 pandemic.
Unfortunately, more companies, especially in the retail industry will go through these challenges in the near future. The biggest risk is that these issues could lead to a contagion. This would happen this way. The companies lay-off their employees, many who have loans. They fail to pay rent and the landlords’ default. If all these parts default, banks would suffer, which would lead to a bigger crisis.
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FTSE 100 Index
The FTSE 100 index rose by more than 2.30% as the COVID-19 curve started to flatten in many European countries. The index is trading at £5,750. On the four-hour chart, the index is approaching the important resistance level of £5,760. This is after the index made a double bottom at around £4,860. The pair is slightly below the 38.2% Fibonacci Retracement level and slightly below the 100-period EMA. I expect the index to attempt testing the important resistance level at £5,860.
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