FTSE 100 futures post-market slump suggests losses are set to continue

The FTSE 100 index gave investors a rough ride on Tuesday as recent events suggest there is little chance of calm this week for investors.

FTSE 100 futures are looking bearish following a day of losses for the index. After opening at 6176 on Tuesday, the FTSE 100 struggled to recover from a daily low of 6105. When the market closed, the FTSE 100 price sat at 6172, prompting concerns that further losses are likely over the coming days.

Fuelling latest bout of investor uncertainty was news that the UK is set to record its largest annual decline in GDP for 300 years. Although speculative at this point, the Office for Budget Responsibility outlined three possible scenarios for the British economy on Tuesday. Of all the outcomes listed, all point to a significant drop in output.

Modelling GDP in the medium term, the report predicts that a best-case scenario could help the UK avoid ‘long-term scarring’. However, in the two less optimistic scenarios, medium-term GDP could fall by between 3% and 6%. Of the areas identified as most at risk, unemployment could peak at 12% in the latter part of 2020.

Fading hopes for V-shaped recovery send FTSE 100 into a spiral

In short, the chances of a V-shaped recovery are falling, a fact that hasn’t been lost on investors. With FTSE 100 shares enduring a rough ride today, it seems there’s little hope of a recovery when trading resumes on Wednesday.

One potential catalyst for change is OPEC's Joint Ministerial Monitoring Committee (JMMC) meeting. A pronouncement is due on Wednesday, after which oil prices could continue their recent positive trend.

The hope is that recommendations from the JMMC will keep OPEC production cuts at their current level throughout August. Analysts have labelled previous cuts a success and the continuation of recent production caps would be ideal to help stabilise oil markets. However, there are concerns that this may not happen. Moreover, with California re-entering a state of lockdown, oil prices have shown signs of weakness today. If the supply/demand balance is significantly affected by Wednesday’s pronouncement, it could cause further issues for the FTSE 100.

Investors will also be tracking the recent reaction to Prime Minister Boris Johnson’s decision to make facemasks mandatory in shops. The rule comes into effect on 24 July and could speed up the recovery if shoppers feel confident browsing in facemasks. Strong performances by Associated British Foods (AFB), Morrison's and Kingfisher could offer some stability to FTSE 100 futures as we move into the second half of July.

Seas are choppy but calmer waters are possible

The current sentiment, however, seems to be trending towards the negative. Any hopes of a speedy economic recovery are gradually slipping away, and the threat of further lockdowns could cause oil prices to struggle in the coming weeks. All the major indicators suggest the FTSE 100 price will decline, and the latest data supports that theory. Tuesday’s 6172 closing price is lower than it was at this time last week (the index opened at 6189 on 8 July). With little in the way of positives, it’s hard to see the ship righting itself this week.

On the positive side, Covid-19 infection rates in the UK haven’t increased dramatically since lockdown restrictions were eased on 4 July. If things continue to improve as the next wave of easing washes over the country, a return to normal will seem less like a mirage and more like an island in the distance. FTSE 100 price watchers will already be preparing for this, which suggests we may be sailing out of choppy waters and into calmer seas as August approaches.

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