FTSE 100 closes lower as airlines are buffeted by quarantine rules on arrivals from Spain

The FTSE 100 closed lower 0.31% lower today after the UK government abruptly imposed mandatory quarantine on travellers arriving in the UK from Spain following a spike in Covid-19 cases.

While the government is not advising holidaymakers to cut their holidays short, they require that on return travellers provide their ‘journey and contact details’ as well as self-isolate for 14 days.

The FTSE has been stuck in a narrow trading band (6050 to 6320) for a month and a half as persistent worries over the strength and speed of the economic rebound, as well as a second wave of Covid-19 infections has all but curbed investors’ enthusiasm in stocks.

Add to this the political tension between western governments and China, as well as the difficulties in getting a second round of fiscal stimulus through Congress and it quickly becomes clear that there are more reasons to be negative than positive in the market outlook.

While the elevated numbers of daily new cases in the US isn’t really a surprise anymore, signs that some European countries may be in the nascent stages of a second wave of Covid-19 infections is causing deep concern among politicians and investors.

Over the weekend, the British government took swift action to impose quarantine rules on travellers returning from Spain based on “evidence of increases in cases of Covid-19 in several regions, but particularly in Aragon, Navarra and Catalonia”.

The latest figures show that the Spanish region of Catalonia has seen the largest increase with 5,702 new cases, as authorities took the tough decision to order bars and nightclubs to shut for at least two weeks from 25th July.

Investors in Spanish equities, fearing the worst for the country’s famed tourism sector during what is supposed to be the best time of the year for them, sent the IBEX 35 down 1.7%, which was more than 1% off the comparatively smaller declines of 0.3% observed on the FTSE 100, CAC 40 and DAX.

To focus on Spain, however, would be unfair as similarly worrying news emerged from Belgium today, as Sophie Wilmès, Belgium’s prime minister, did not rule out the possibility of a second total lockdown.

On Friday, IAG, the Anglo-Spanish group which owns airlines, British Airways & Iberia, confirmed following media speculation that it was evaluating “a rights issue of up to €2.75 billion” in order to strengthen its balance sheet, which led to a 5% decline in its share price.

This was, however, before the announcement of the UK’s government decision to require passengers from Spain to self-isolate for 14 days, so when markets opened this morning it wasn’t a surprise to see IAG as one of the worst performing stocks on the exchange, declining almost 8% by the session’s end.

UK 10-year gilt yields steadily declined by 3bps over the day to 0.11% as investors sought out haven assets. Silver rose an astronomical 7%, driving Fresnillo plc, the Mexican-headquarted but UK-listed silver producer, higher by 7.13%, making the stock the best performer on the day.