FTSE steps back amid sober mood and Burberry flags coronavirus impact

“Investors appear to be worried about China’s coronavirus once again, after a couple of trading sessions where focus on tariff cuts, a potential vaccine and economic stimulus generated more positive sentiment.

“The number of cases has passed 30,000, a doctor who was a prominent whistleblower at the outset of the crisis has died, and ratings agency S&P has cut its forecast for economic growth in China in 2020.

“These unpalatable truths saw a more sober mood prevail in Asian markets and it is this, rather than the fresh record highs in the US, which provided the cue for today’s weak open for the FTSE 100.

“Notably commodity prices remain under more pressure than equities. Oil producers’ cartel OPEC looks set to bring forward its scheduled March meeting and may introduce deeper production cuts to compensate for a drop in demand, despite some apparent reluctance from affiliate Russia.

“The US jobs report due out this afternoon could reveal if the world’s largest economy is feeling any impact from the coronavirus or, in other words, if the old adage that when America sneezes the world gets a cold works in reverse,” says Russ Mould, Investment Director at AJ Bell.

Burberry

“Burberry has confirmed what the market has been speculating for weeks – that the coronavirus is having a negative impact on luxury goods demand in China.

“Its share price has fallen by 10% this year as it seemed highly likely that the reduction in people freely moving around China, and the shift in people’s focus to worrying about their health rather than thinking about shopping, would impact Burberry’s earnings. Asia is very important for sales of its products.

“Just over a third of its stores in Mainland China are currently closed with the rest opening for shorter hours each day and also seeing a significant drop in visitor numbers.

“Burberry is right to have withdrawn its earnings guidance given so much uncertainty on sales. It joins a growing list of companies doing the same.

“For example, we’ve already seen Starbucks warn a week ago that its earnings would be at risk from the coronavirus and that it had temporarily closed more than half of its outlets in China. Nintendo this week said production of its Switch gaming console in China had been affected by the epidemic.

“Reckitt Benckiser has generously donated £5.5 million of cash and antibacterial products to support China’s efforts in minimising the spread of the virus. However, one could speculate that sales of its products including baby formula are at risk of being hit by supply chain disruption in the country if existing stockpiles are low.”

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