No end in sight to the selling

Markets continue to retreat as the coronavirus dominates headlines, with the FTSE 100 down 70 points in mid-morning trading.

• Equity fall goes on

• Central banks begin to enact stimulus measures

• Diageo warns on profits

To see the FTSE 100 below 7000 will be a familiar sight  for UK investors, with the index having surrendered all its gains over the past year. The index’s international component has driven the selling, since while the travel firms may have captured the attention, the real loss in point terms will come from the banks, oil companies and mining firms that make up the real meat of the index. Of course, the selling is not confined to London, and if anything Europe is more heavily affected this morning, since the greater number of new cases has been seen on the continent. Against such a backdrop, 2019’s concerns about Brexit and trade wars fade into insignificance, and with central banks in Asia already ramping up their response attention will now turn to the ECB and the Fed for some kind of policy action. The economic impact clearly cannot be contained now to China alone, and both monetary and fiscal stimulus will be needed to help economies recover from this.

The litany of companies blaming the virus for poor performance was added to this morning, as Diageo warned of a £200 million hit. Having pivoted heavily to Asian markets, the firm will now have to deal with the consequences of such a strategy, but just as Diageo itself is trying to look to the longer-term, those investors looking for a strong performer should now be taking a serious look at the drinks giant. Recent weakness merely takes some of the froth out of the rally, but the long-term trends in the share price and profits cannot be ignored.

Ahead of the open, we expect the Dow to start at 26,916, down 165 points from Tuesday’s close.