Anxiety attack on the financial markets shows some signs of alleviating

Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown

‘’The anxiety attack on the financial markets shows signs of alleviating, as investors pause for breath and spot signs of optimism while scientists race to establish the severity of the new variant. The FTSE 100 opened up 1% in early trading, recovering some of Friday’s dramatic losses and the FTSE 250 was 1.5% higher.

Amid the doom which took hold as doors were slammed shut on travel routes from Africa and increased restrictions were imposed, there are glimmers of hope. There are reports from doctors in South Africa that Omicron infections don’t seem more severe and the World Health Organisation’s appeal for caution also appears to have calmed some nerves. It has observed that although there appears to be increasing rates of hospitalisation, that may be due to higher numbers being infected rather than due to its specific strain.

This has helped ease concerns that global trade will be severely dented if the new variant takes hold, which saw the steepest falls in the oil price in 18 months on Friday. A barrel of Brent crude has rebounded a little, rising by 4.5% initially but then falling back, hovering around $75 a barrel. The slight recovery in the oil price has helped BP and Shell which opened higher. After nosediving on Friday, British Airways owner IAG, has edged back upwards, up by more than 3% in early trading, amid hopes that travel restrictions will be limited to those rolled out over the weekend, until more is known about the virus. EasyJet and Ryanair have also caught a ride upwards, rising by around 2%.

On the FTSE 250 the companies showing the steepest recovery were those re-opening stocks which saw some of the sharpest declines as fears took hold on Friday.  WH Smith which has become hugely reliant on sales across its outlets across the travel network jumped by 5.7% while the Restaurant Group was up by 4.7% in early trade, closely followed by Carnival, up by 4.6%. News of queues at vaccination sites, with demand for booster jabs high has helped with the relief wave amid hopes the fully vaccinated will have more confidence to keep travelling, eating out and booking cruises next year. But still, this is not a complete snap back, worries remain that demand will be more subdued that expected, and patience is going to be the name of the game until more is known about the trajectory of this strain.

Topping the FTSE 100 leader board is BT, amid reports that India’s Reliance Industries is considering a bid for the company. Talks are believed to be in their early stages, but Reliance is considered to be keen to get at least a foothold in the telecoms company. It’s clearly interested in BT’s future growth plans with its focus on profiting from the roll out of fibre broadband and 5G. News that the Indian conglomerate Tata Chemicals is in talks to buy the battery materials business put up for sale by Johnson Matthey has also sent shares in the FTSE 100 listed company higher. The price tag rumoured to be attached to the potential bid of between $500 and $700 million is clearly seen as attractive as it would give the company more financial firepower to expand its presence in hydrogen technologies.

It’s a wait and see mood on the markets today, as speculation swirls about possible takeovers and investors stay on high alert for any fresh detail about Omicron and its potential impact for the direction of the pandemic.”