London shares retreat as U.S.-China coronavirus spat grows

(Reuters) – UK stock markets fell on Monday as U.S.-China tensions flared up again over the origin of the coronavirus, while Rolls Royce tumbled on reports it was considering job cuts to ride out a looming recession.

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo

The British aero-engine maker (RR.L) fell 5.2% to the bottom of the FTSE 100 after a source told Reuters it was mulling cutting up to 15% of its workforce as customers slashed production and airlines parked planes due to a halt in global travel.

The blue chip FTSE 100 .FTSE shed 0.2%, but declines were capped by strong gains for health care .FTNMX4570 and energy .FTNMX0530 firms.

The domestically focussed FTSE 250 index .FTMC shed 0.9%, deepening a 1.9% slide on Friday, when U.S. President Donald Trump pinned the blame for the COVID-19 pandemic on China and threatened new tariffs.

U.S. Secretary of State Mike Pompeo compounded those fears on Sunday by saying there was “a significant amount of evidence” the virus emerged from a laboratory in the central Chinese city of Wuhan. An editorial in China’s Global Times said he was “bluffing”.

“Markets are pretty fragile as it is because of the health crisis and now we’re seeing the potential for the U.S.-China trade war being brought forward,” said David Madden, analyst at CMC Markets in London.

By the end of April, UK stock indexes had recovered more than 20% from March lows on aggressive global stimulus and signs the coronavirus outbreak was easing, but investors have remained fearful of a severe economic hit as data underlines the business damage already done.

A private survey released on Monday showed Britain’s largest companies expect the pandemic to reduce their sales by more than a fifth this year, a steeper slide than during the 2008-09 financial crisis.

With the UK shadowing Italy as the worst hit European country, Prime Minister Boris Johnson has so far resisted easing a nationwide shutdown, but is due to review those orders by May 7.

All eyes this week will also be on Bank of England policy meeting on Thursday, although expectations are low for further stimulus after the central bank cut rates twice in March and ramped up its bond buying programme.

“The next two to three weeks are going to be extremely critical on two fronts: health and the economy,” said Hussein Sayed, chief market strategist at FXTM.

“If cases begin to grow and the curve steepens, the chances are high of returning to another phase of complete shutdown. That would put economies on freeze again and the only direction for stocks to head is then down.”

Battered cruise operator Carnival Plc (CCL.L) shed another 7.2% after reports here that it was facing a U.S. inquiry into its handling of the COVID-19 outbreak that resulted in more than 1,500 confirmed cases aboard its cruise ships. The stock has now lost nearly three quarters of its value this year.

Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Anil D’Silva

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