Second lockdown fears weigh on equities

The growing risk of a second national UK lockdown has spooked equity markets over the last week. We already expect the recovery to stall in Q4 and additional COVID-19 restrictions could easily throw it into reverse, which would hammer UK corporate revenues. What’s more, positive noises from the Brexit negotiators have caused the pound to jump, which devalues the overseas earnings of UK companies in pounds. As a result, the FTSE 100 has fallen to its lowest level since May. Assuming that another full national lockdown is avoided, then we think that the FTSE 100 will stop underperforming other developed markets and regain its pre-crisis level by the end of 2022.  But the risks to this forecast are firmly to the downside.