Foot and Mouth Outbreak to Hit FTSE 100 Index

By: Nadeem_Walayat

Latest reports suggest that the Foot and Mouth virus strain to hit the UK on Thursday is one that is NOT normally found in animals and is linked to vaccines. The strain is thought to originate from the Institute for Animal Health just three miles from the outbreak farm.

The last out break of Foot and Mouth disease in the UK in 2001 cost the Economy an estimated £10 billion ($20 billion) with the agricultural and tourism sectors of the economy hit hard. The government at the time was accused of gross incompetence in the handling of the crisis which saw the destruction of more than 6 million animals and closure of much of the British countryside as well as export bans.

The New Prime Minister Gordon Brown, fully aware of the previous disastrous response has moved at speed to ensure that the outbreak can be contained. It will be some days before the measures taken can be seen to be effective or not in containment. However it can hardly be reassuring that hours after Gordon Brown promised that Experts were working night and day to contain the virus, are also responsible for the outbreak.

The Stock Market sectors expected to be hit as the market prices in the 'worst case' scenerio will be farming, food, tourism, bookmaking (due to cancellation of sporting events) and related transportation such as airlines. The markdown may prove temporary if containment is confirmed during the following 2 weeks, if no new cases are found. However if containment fails and something similar to 2001 occurs, then the sectors could be hit for well over 6 months if not going into 2008. The last outbreak lasted 7 months and it took another four months for the UK to be declared free of foot and mouth disease.

The 2001 Foot and Mouth Outbreak saw the FTSE 100 index fall from 6100 to a low of 4200 or 45%. Whilst obviously the entire fall cannot be attributed to Foot and Mouth as the FTSE was in a bear market at the time. It was a contributory factor in the reinforcement of the overall negative sentiment.

Therefore we can take the cue that as long as outbreak remains un contained then it will be an increasingly negative contributory factor in the trend of the FTSE 100 Index. The expectations were already for the FTSE to be in a summer correction which targeted a low above 6000. An outbreak similar to 2001 would target a break of 6000.

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By Nadeem Walayat
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