The FTSE 100 is dropping like a stone again as fears over the economic implications of Covid-19 have reignited. Britain’s blue-chip index is down by triple-digit figures in Thursday business and trading at one-week lows.
Barclays (LSE: BARC) is one of the leading fallers today and is currently down by around 4%. Its descent back below the 100p per share marker isn’t hard to understand. A ghoulish raft of domestic economic data on Wednesday included news that GDP plummeted 5.8% in March, the biggest monthly decline on record.
This started the decline and shortly afterwards chancellor Rishi Sunak predicted that “a period of significant disruption and… a significant recession” is on the cards.
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News flow wasn’t better over in Barclays’ US territory on Wednesday either. Federal Reserve chairman Jerome Powell called the coronavirus outbreak “the biggest shock that the economy has had in modern times.” He added that it could take years for the economy to recover. It looks like the Footsie bank is set for a world of fresh pain then.
Rates are plummeting
One problem banks like Barclays face is a likely explosion in bad loans and a long period of stagnating revenues amid tough economic conditions. This is only one side of the coin though. With the global economy moving into an eye-watering recession and a drawn-out recovery on the cards, it looks like central banks will be keeping the monetary stimulus coming thick and fast.
In yesterday’s announcement, Powell said that “while the economic response has been both timely and appropriately large, it may not be the final chapter.”
The central bank continues to flirt with the idea of bringing in negative interest rates, action which Bank of England deputy governor Bed Broadbent also suggested could be on the cards earlier this week. It’s another blow for the profits outlook of the entire banking sector.
A Footsie disaster?
Low interest rates have already wreaked havoc with the Barclays share price of course. It currently sits at 95p per share, significantly lower than the 270p it changed hands at in May 2010. The long-term effects of the coronavirus crisis isn’t the only problem for the FTSE 100 firm though.
Let’s not forget the Brexit saga has weighed heavily upon Barclays and its peers of late. They played the Bank of England’s hand when it came to lifting benchmark rates firmly away from the lows visited in the aftermath of the 2008/2009 banking crisis.
Barclays and its peers have also endured a steady uptick in loan impairments and a drop in revenues as Brexit uncertainty has weighed. Key questions remain unanswered but things could get even worse should the UK embark on a financially-destructive ‘Hard Brexit’ at the turn of 2021.
All things considered, it appears as if the 2020s will mark another decade of decline for Barclays. It simply carries too much risk and could do serious damage to your wealth and your retirement plans. I’d rather go shopping for other FTSE 100 shares today.
