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COVID fears and US cigarette crackdown knock £37bn off FTSE

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Lucy Harley-McKeown
·4-min read
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Watch: FTSE falls despite surprise drop in unemployment

European markets tanked on Tuesday, as an air of caution blew through global equities and brought a weeks' long rally to a halt.

Major markets closed down as much as 2% across Europe. Analysts blamed renewed COVID caution, investors taking money off the table ahed of earnings, and rumours of a crackdown on cigarettes in the US.

"European markets have been hit hard today, with rising global coronavirus cases serving as a timely reminder that the pandemic is far from over despite recent vaccination progress," said Joshua Mahony, a senior market analyst at IG. 

"Traders appear to be caught between the optimism of a gradual reopening at home and pessimism over the growth in more worrying strains around the world."

The FTSE 100 (^FTSE) closed down 2% in London, knocking around £37.3bn off the index's value according to analysts at AJ Bell and Refinitiv data. 

Britain's two biggest tobacco companies saw more than £6bn wiped off their combined value as reports emerged from US outlets such as The Wall Street Journal and Bloomberg that president Joe Biden was mulling a cut to nicotine content in cigarettes and a ban on menthols. Menthol cigarettes have already been banned across the European Union and UK.

British American Tobacco (BATS.L) had lost 7.5% by the close in London, while Imperial Brands (IMB.L) — which owns Golden Virginia rolling tobacco and Rizla, among others — was down 6.8%.

A man smokes a cigarette that was allegedly smuggled into Venezuela across land borders and which are being sold in the historic centre of the capital, in Caracas on February 23, 2021. - Though smuggling is not a new phenomenon in Venezuela it has skyrocketed in recent years amid the deep crisis, with a minimum wage of less than $ 1 a month. (Photo by Yuri CORTEZ / AFP) (Photo by YURI CORTEZ/AFP via Getty Images)
Reports suggest the Biden administration is considering a cap on how much nicotine can be included in cigarettes. Photo: YURI CORTEZ/AFP via Getty Images

Elsewhere, Primark-owner Associated British Foods (ABF.L) slid 5.5% after reporting a drop in profits and sales.

READ MORE: Primark-owner ABF to repay £121m in furlough money as profits dive

On the continent, the German DAX (^GDAXI) was down 1.6% the close in London and the French CAC (^FCHI) was down 2.1%.

Sentiment wasn't helped by a weak open in the US. The S&P 500 (^GSPC) and Dow Jones (^DJI) were both down 0.9% by the time markets shut in Europe, while the Nasdaq (^IXIC) was 1.1% lower.

Watch: UK unemployment rate falls to 4.9%

Earlier in the day, European traders had an initially muted reaction to news that UK unemployment had unexpectedly fallen to 4.9%. Stocks across the continent had opened largely flat.

While the UK's headline rate declined, the Office for National Statistics (ONS) said the number of payrolled workers dropped by 56,000 between February and March as the pandemic continued to take its toll on the jobs market. 

It marked the first decline in the payroll for four months. Overall, there were 813,000 fewer workers in jobs than in March 2020. The decline in headline unemployment came as inactivity also rose.

READ MORE: Unemployment rate drops for second month in a row

“Most of the data published by the ONS today is unsurprising but it does reinforce the huge challenges ahead," said Danni Hewson, AJ Bell financial analyst.

"Whilst the unemployment rate fell a sliver for the three months to the end of February, early indicators suggest there was a further decrease in the number of employees on the payroll in March, down 56,000 from the previous month."

Brent (BZ=F) and crude oil (CL=F) prices saw a return to growth after declines on Monday. Both gained more than 1% in early trade after an Iranian official offered an upbeat assessment of nuclear talks, even without the US present. Prices have been underpinned by continued hopes a global economic recovery.

READ MORE: UK intervenes in $40bn Nvidia-Arm deal on national security grounds

Asian shares were mostly lower overnight after China kept its benchmark lending rate unchanged. The Hang Seng (^HSI) was flat in Hong Kong while the Shanghai Composite (000001.SS) was 0.1% lower at the close. The Nikkei (^N225), Japan's benchmark index, bucked the trend, falling 1.5%. 

“Asian markets have experienced short-term volatility as investors balance the impact of higher interest rates with increasing optimism that pent-up demand will boost earnings,” said Janet Tsang of JP Morgan Asset Management.

Watch: India added to red list as concerns mount over coronavirus variant