FTSE marks Covid anniversary with slump as travel sector falls for a second day, while Cineworld prepares for reopening

“The FTSE 100 marked the one-year anniversary of the first Covid lockdown in suitably downbeat fashion,” says AJ Bell Investment Director Russ Mould.

“The ongoing impact of restrictions, particularly on the travel sector, play a part as a ban on going on holiday abroad is extended with new, more severe penalties for flouting the rules.

“Unsurprisingly the likes of EasyJet and Jet2 suffer further falls today after slumping yesterday on hints that a week in the sun abroad was looking unlikely thanks to surging cases in mainland Europe.

“Even if the curbs are relaxed at a scheduled review next month, people may not be encouraged by these latest developments to book a break.

“At least the index as a whole is in a happier place than it was 12 months ago when it traded below the 5,000 mark amid concern about the impact of Covid on the economy.

“The sustained recovery from those lows has been supported by the rapid development and, in some cases, rollout of vaccines, with the markets continuing for the most part to look forward to recovery – even if inflation risks have added some clouds to the outlook.

“However, warnings from Angela Merkel that Germany is effectively in a new pandemic thanks to the impact of new variants are a reminder that the crisis is not over yet.

“There were also echoes of the US-China spat which had a big impact on investor sentiment pre-Covid as new sanctions were imposed by the US and its allies the EU, UK and Canada in response to Chinese treatment of Uighur Muslims in its Xinjang province, with Beijing responding in kind.”

Cineworld

“It’s the big moment Cineworld has been waiting for – its US cinemas, which account for three quarters of its business, will soon reopen, followed a month later by its UK sites.

“The company has been without any revenue from the US market for six months and, more importantly, over the past 12 months it has seen a massive shift in how people consume films.

“Cinema operators have long argued that streaming would not kill the silver screen. There was a similar argument when VHS tapes were launched, so too DVDs. They managed to exist side by side with cinemas and so did streaming services in their initial phase. But along came Covid-19 and film lovers had no choice but to stream.

“The key challenge now is whether consumers will want to go back to the cinema. So many people are bored at home and fed up with repeating the same activity of going for long walks and then sitting in front of the TV or computer. Getting out of the house and reengaging with leisure activities is at the top of the list for so many people.

“One would think visiting a cinema is essentially mirroring what people have been doing for the past year, namely sitting in a seat and staring at a screen. But there is still something magical about sharing the experience of the cinema with an audience and seeing films on a very large screen.

“It seems wrong to declare Covid being the final nail in the coffin for cinemas. However, how long certain cinema operators will stay alive is a separate matter. Cineworld is drowning in debt and it needs people to be devouring pick n mix and buying lots of tickets to revive its earnings.

“Ultimately its success will depend on the appeal of the films being shown in the cinema and consumers’ willingness to mix in public again. There might be some initial reticence, but the lure of big films like the new James Bond title, No Time To Die, could be the catalyst that gets bums on seats once again.”

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