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Red alert! 3 reasons why the FTSE 100 could keep on sinking

Global stock markets have been having a fresh tear up in recent sessions. The FTSE 100 surged back above 7,500 points earlier this week but is falling sharply again on Thursday.

Renewed fears over the coronavirus are forcing Britain’s blue chips sharply lower today. And there are a variety of factors that could prompt this weakness to continue.

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Coronavirus crisis worsens

The Footsie’s slipped to 10-day lows today following reports of a worsening in coronavirus infection rates in China.

Markets had rallied in recent days on hopes that authorities were getting to grips with containing the outbreaks. However, news that the number of new confirmed cases in China has rocketed by 15,000, and the number of deaths by around 250, in just one day has quashed this renewed risk appetite.

It’s possible that market concerns over the crisis could continue to grow, too. The mass sacking of party officials in virus-stricken Hubei suggests that Beijing has little confidence in current containment measures. And the number of confirmed cases outside of China keep growing, too.

Europe moves closer to recession

More swathes of disappointing eurozone economic data has smacked share markets today, too. Yesterday saw the release of truly-shocking industrial production numbers, ones that raised concerns of a recession across the Channel.

Industrial activity fell 2.1% in December, worse than expected and the biggest month-on-month fall since September 2012. The euro has plummeted and is now trading at 1.20 against the pound for the first time in three-and-a-half years.

Many FTSE 100 companies report in euros and dollars, meaning that their profits take a whack when the UK currency rises. A great many trade on the continent and so suffer from a broader worsening in economic conditions, too.

Yesterday’s announcement isn’t a shot out of the blue. Data has been disappointing from the eurozone bloc for well over a year now. And this latest batch of bad data has increased speculation that the European Central Bank might be forced to embark on fresh rate cutting, another worrying signal for the single currency.

A budget spending boost

It takes two to tango, of course and the fate of the euro/pound exchange rate is influenced by economic and political conditions here in Blighty, too.

I’ve mentioned before how tension over the state of Brexit trade talks could hit growth and therefore sterling in 2020. However, developments today suggest that the pound could experience some strength in the weeks and months ahead instead.

A disagreement over advisers between Downing Street and Chancellor Sajid Javid resulted in the shock resignation of the latter earlier today. The relatively-unknown Rishi Sunak will be his replacement. Downing Street is expected to have more influence over the Treasury now, meaning that a boost to spending could be around the corner, helping domestic growth and possibly reducing the need for interest rates. The approval of HS2 this week illustrates Prime Minister Johnson’s desire to get Britain spending.

The next budget on Wednesday, 11 March could provide fireworks for sterling and create fresh weakness for the FTSE 100, then.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.