By Eliman Dambell
Tuesday saw the UK government commit £330bn in a bid to calm the chaos the Coronavirus has caused its citizens. The move which sees the government commit the equivalent of 15% of its GDP to helping small businesses, landlords and all those financially impacted by COVID-19.
The FTSE 100 on the day of the announcement did react, rallying from a low of 4997, to a high of 5367 in the process. However as we saw when the FED made similar financial commitments, the effect is only short lived as the markets still hold huge levels of uncertainty. This uncertainty does derive from the fact that although we are seeing significant action both from a fiscal and political perspective, the underlying issues still remain.
However if we are able to look past the underlying issues, who benefits most from this move by the UK government? And when will we see it’s impacts finally trickle down to the everyday consumer?
The government backed loan, which will be broken down into 2 main schemes for SMEs and larger companies looks set to begin in the next few days. The loan will come with “favorable” rates, which were not initially disclosed.
In addition to this, Sunak broke down the details of how this would be structured for smaller sized companies. Explaining that loans or grants up to the tune of £25,000 would be provided to the following industries. These include the retail and hospitality sector. In his quote referring to this topic he stated, “Every single shop, pub, theatre, music venue, restaurant will pay no business rates for 12 months.”
This announcement came as the UK sat on the periphery of breaching over 2000 reported cases of the Coronavirus. As the death rate sits near 3%.
The FTSE 100
Prior to the announcement we saw the FTSe 100 experience huge levels of selling, before creating what is known as a support line. The support line is known as the floor in the price movement, where the markets begin to settle. However as the FTSE began to settle on that new floor, the markets were treated to the news by Sunak and his and the governments plans to save the UK economy from COVID-19. This Batman move, essentially for a brief period, as seen on the highlighted area within the chart below, gave investors some confidence, and saw traders buying the FTSE as a result.
However the buying ceased, when the markets reached the ceiling in price, or resistance, and investors started dumping their positions as they realised that although Sunaks move was a great one, it would be enough to end the current pandemic.
So as the markets continue to ping pong. Many are still waiting to see if the UK will unleash further actions to help stop the bleeding. Will they close schools? Will borders be shut? Will a state of emergency be declared? The UK government seems to be biding it’s time before declaring such action. However is it only a matter of time? And if so how would markets react which such action is taken.