FTSE 100 index declined by more than 3% in the futures market as worries of Coronavirus impact to the UK economy rose. The most urgent reason for the decline was that banks had been directed to avoid paying dividends and bonuses. I had written about this in my report about Lloyds share price yesterday.
The request for banks to halt dividends worth more than £7 billion came from the regulator, who saw it unwise for the companies to return money to shareholders at a time of uncertainty. They argue that the banks will be wise to keep the funds in reserve.
Meanwhile, there are signs that the current Coronavirus crisis could turn into a full-scale financial crisis. With many firms not doing business, most of them will be forced to file for bankruptcy. Just yesterday, I wrote that BrightHouse and Carluccio’s had already moved into administration.
On the same day, JD Sports, the big retailer said that it would not pay rent, joining other retailers like Primark. This decision could have negative impacts on the market since most landlords depend on loans from banks. Indeed, big landlords like Intu and Hammerson said that they have received less than 40% of their March rent.
Therefore, risks of a major recession or even depression are high since banks will not receive funds from companies and consumers.
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FTSE 100 Outlook
The FTSE 100 index declined from the yesterday’s high of £5,283.5 to a low of £5,438, which is along the 78.6% Fibonacci Retracement on the four-hour chart. We also see that the index, which was previously rising has found some resistance at the yesterday’s high of £5,283. Additionally, the index is along the neckline of the head and shoulder pattern. In the near term, it is possible that the index will retest the March low of £4,885.
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