London stocks drop on worries of second wave of infections, Fed outlook

London stocks fell for the fourth straight day on Thursday, hit by fears of a second wave of COVID-19 infections in the United States and a bleak economic outlook by the Federal Reserve.

Total cases of the novel coronavirus in the United States surpassed 2 million on Wednesday, according to a Reuters tally, amid a gradual resumption of activities in most states.

The Fed projected the US economy to shrink 6.5pc in 2020, and signalled it plans years of extraordinary support for an economy facing a long road back from the COVID-19 pandemic.

"The pessimistic outlook from the Fed was not unexpected, but right now investors are looking at potential declines further because markets are spooked by the possibility of a second wave of coronavirus infections," said Joshua Mahoney, markets analyst at IG Group.

The blue-chip FTSE 100 index slipped 2.5pc, with financials and oil & gas stocks falling the most. UK stocks are now set for their first weekly loss in four.

Cyclical stocks traded lower, while defensive plays including healthcare and personal goods sub-indexes inched up, highlighting a diminished risk appetite.

The British mid-cap index fell 2.6pc, tracking its worst day in nearly one month.

"In the UK, we have gone from a position from market optimism to a position where clearly, we are not going to see that kind of drive anymore," Mahoney said.

Chemical maker Johnson Matthey fell 3.1pc after it halved its final dividend on the back of dismal demand for its pollution filters generally used by the automotive industry.

Travel and leisure stocks took another beating, with Carnival's 9.5pc slide leading declines on the FTSE 100 index.