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FTSE 100 finishes well off opening levels after sharp oil price declines

FTSE 100 index sheds 194 points to close well below opening levels
Goldman Sachs and Bank of America..

By admin , in Cambridge , at April 15, 2020

  • FTSE 100 index sheds 194 points to close well below opening levels
  • Goldman Sachs and Bank of America have become the latest financial firms to announce poor results
  • IEA expects record lows for oil supply and demand

5.10pm: FTSE suffers from heavy declines in oil and financials

The FTSE 100 closed at 5,598 on Wednesday, a 194-point loss on the day to finish 3.3% below its opening levels.

"A rising US dollar is reflective of the general sense of angst in markets today, as stocks begin to look vulnerable to a pullback after their sizeable rebound from the March lows," wrote IG's chief market analyst Chris Beauchamp on Wednesday.

"Investors are also keeping a nervous eye on oil markets, as the price of that commodity renews its drive lower now that the OPEC+ meeting is out of the way. There is a growing realisation, as many suspected last week, that short of dramatic cuts in the multiple tens of millions of barrels per day, nothing would be enough to appease an oil market that had already seen a huge rally off its own March low. So it has proved, with energy stocks taking a hit as well, knocking back the FTSE 100 and the Dow."

3.50pm: US crude now below US$20 per barrel

The Footsie plunged further as it headed to close, while oil prices were driven down by the IEAs forecasts on global demand and supply for the whole year.

Londons leading index shed 171 points to 5,619, perhaps after sterling trimmed its losses, dipping 1% to US$1.2498.

Meanwhile, WTI crude was trading at US$19.74 per barrel, while Brent crude was US$27.61 per barrel.

Good morning. Here's a list of things that cost more than a barrel of oil right now.

— emorwee (@emorwee) April 15, 2020

“Despite an agreement being reached last week to considerably cut global output, oil price continued their downward trajectory as the IMF slashed global growth projections to the worst since the '30s,” analysts at SP Angel said.

“The IMF has also estimated an average 2020 oil price of US$35 per barrel which some may even see as optimistic relative to current pricing.”

“However longer term, the IMF predicts almost a V-shaped recovery with the advanced economy group forecast to expand 4.5% in 2021, while growth for the emerging market and developing economy group is forecast at 6.6%,” SP Angel concluded.

2.45pm: Wall Street opens in the red on “horrendous” US retail data

The Footsie trimmed its losses in the early afternoon though US indices opened with a sharp fall.

Londons big caps shed 154 points to 5,636 while the Dow was down 481 points to 23,468 and the S&P 500 lost 57 points to 2,788.

Sterling was doing worse than earlier in the day, sinking 1.3% to US$1.2462.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said March retail sales numbers in the US were “horrendous”.

Total sales dropped by a record 8.7%, below the consensus of -8%.

The clothing, food service and automotive sectors saw declines of 50%, 26% and 25% respectively.

Food sales jumped 25%, reflecting panic buying in the shops when the lockdowns were announced.

The manufacturing industry came also below expectations: March production fell 5.4%, below the consensus of -4%.

Manufacturing output fell 6.3%, while consensus was -4.1%, in a much bigger drop than the -3.5% seen in September and December 2008, the worst months of the Great Recession.

Both readings for this month are expected to be much worse, analysts said.

2pm: poll shows investors expect a further plunge

The FTSE 100 slipped deeper into the red after lunch as investors mulled the collapse of the oil sector as well as growing concerns the worst recession seen in a century is on the horizon.

The blue-chip index tanked 176 points to 5,614 with Wall Street also expected to start on the back foot.

Connor Campbell, an analyst at Spreadex, said todays performance could have been worse considering BP and Shell are both down 5%.

“However, the FTSE was aided by sterlings own issues – the pound was down 0.9% against the dollar and 0.4% against the euro – alongside gains for Ocado Group PLC (LON:OCDO), which is continuing to benefit from the lockdown,” he commented.

A research by ETF provider GraniteShares revealed that 57% of UK retail investors expect the FTSE 100 to fall even more over the next few weeks.

Only 12% expect it to rise, and one in four are unsure.

Investors either think the impact of the pandemic will keep worsening or see economic and social unrest due to businesses going bust.

There are also expectations of more panic among investors if rescue plans by governments falter.

12.45pm: A third of Footsie's constituents scrap dividends

The Footsie was holding onto its losses at lunchtime, dropping 130 points to 5,660.

Following this mornings announcements that Ferguson and Smurfit Kappa Group plc (LON:SKG) were going to scrap their dividend, the number rose to 32 FTSE 100 constituents that are trimming, deferring or cancelling the payouts.

As news on dividends flock every day, investors may be bracing for more cuts.

However, analysts pointed out that the dividend yield could still be 4.1% for this year, assuming £64bn of surviving distribution.

“The starting point that a third of the FTSE 100s members make no dividend payment at all offers some sort of downside protection so attention must then focus on the largest payers,” said Russ Mould, investment director at AJ Bell.

Despite the oil sector malaise, both Shell and BP previously said that cuts to capital expenditure and asset disposals will provide cash, though they did not mention dividends.

So far, booze producer Diageo PLC (LON:DGE) has confirmed the interim payout for the six months to December, while Tesco PLC (LON:TSCO) has declared a final dividend and will pay a special one when sales of Asian businesses are completed.

Utility SSE PLC (LON:SSE) has repeated its goal of distributing 80p per share but it will continue to monitor the situation.

“Prudential PLC (LON:PRU) is now longer subject to PRA rules and has the Hong Kong Insurance Authority as its regulator, and the hullaballoo in Asia over HSBCs PLC (LON:HSBA) move to pass on its final 2019 dividend means the insurer will be popular over there if it holds its ground and makes its payments on time,” Mould concluded.

11.45am: HS2 to start work “immediately”

The Footsie trimmed its losses as it headed for lunchtime, dropping 121 points to 5,669.

In the building sector, high-speed railway HS2 announced it will commence work “immediately” following approval from the Department for Transport.

The project will go ahead with the first section of the route, starting from London Euston to Northolt.

The £3.3bn contract involves a joint venture made up of Skanska, Strabag and Costain Group PLC (LON:COST), with the latter surging 49% to 82p on the announcement.

Kier Group PLC (LON:KIE) and Balfour Beatty plc (LON:BBY), which are involved in the third and last phase respectively, remained underwater.

The decision was met with criticism on whether the £100bn required to complete the project would be better spent elsewhere, considering the ongoing pandemic.

HS2 is not a shot in the arm for the economy. In reality we are shooting ourselves in the foot. It will squander a vast amount of resources that would be far better deployed elsewhere. And the costs will almost certainly exceed the benefits. #HS2

— Richard Wellings (@RichardWellings) April 15, 2020

The rail line had already sparked controversy as it involves destroying ancient woodland.

On the other side of the pond, Wall Street is expected to open in the red.

10.45am: global oil demand, supply expected to see record fall in 2020

The FTSE 100 was firmly in the red in mid-morning, not helped by the oil stocks plunging further.

The big-cap index lost 131 points to 5,658, while its constituents BP PLC (LON:BP. and Royal Dutch Shell PLC (LON:RDSB) both slipped 5% to 303.45p and 1,346.7p, respectively.

The oil sector took a further hit on Wednesday after the International Energy Agency (IEA) said global oil demand is expected to fall by a record 9.3mln barrels per day in 2020, after virus containment measures worldwide have brought mobility “almost to a halt”.

Demand in April is estimated to be 29mln barrels per day lower than a year ago, at a level last seen in 1995.

The recovery in the second half is expected to be gradual, with December demand still down by 2.7mln barrels per day.

The plunge in demand would be even more damaging for the industry without the historic recent steps announced by OPEC+ & G20 countries.

They should lower the peak of the supply overhang & flatten the curve of the stock build-up. Demand may exceed supply in the 2nd half of 2020.

— Fatih Birol (@IEABirol) April 15, 2020

Global oil supply is also set to plunge to record lows, down 12mln barrels per day on 2019, after the historic OPEC+ deal.

“The measures announced by OPEC+ and the G20 countries wont rebalance the market immediately,” the IEA said.

“But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis, whose consequences for the oil market remain very uncertain in the short term.”

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10am: Ferguson drops plans to move to Wall Street for now

The Footsie kept descending in mid-morning due to depressed oil stocks, not helped by reports that Saudi Arabia is offering discounted prices to Asian customers.

Londons leading index shed 100 points to 5,690, while sterling dropped 1% to US$1.2506.

Meanwhile, Ferguson PLC (LON:FERG) decided to drop the interim dividend and its share buyback until the effects of the coronavirus pandemic become clearer.

The plumbing and heating products distributor is also shelving plans for a full listing on Wall Street after consulting major shareholders, but will seek approval for an additional listing of some shares in the US instead.

However, according to AJ Bells Russ Mould, the update “reflects a potentially concerning trend at the top end of the UK market”.

Several premier constituents have left the index in recent years, such as technology firm ARM and pay-TV company Sky, while Unilever shareholders stopped a move to the Netherlands in 2018.

“Fergusons proposal for a potential phased shift in its primary listing to the US, previously it had planned to do this immediately, could still eventually deprive London of another leading player in its field,” Mould commented.

“There is logic to this decision with the demerger of its UK business apparently still on track (subject to a return to more normal market conditions later in the year) but this will be of limited comfort to institutions whose mandates wont allow them to invest in the shares if they are primarily traded in the US.”

8.45am: Caution prevails

The FTSE 100 made a muted start to proceedings on Wednesday, taking its cue from Asias main markets, which paused for breath, rather than a super-charged Wall Street.

The index of UK blue-chip stocks nudged down 15 points to 5,776.73.

WATCH: Morning Report: FTSE 100 opens flat as economic fallout concerns grow over coronavirus

Gains made in the US came mainly on the back of the technology stocks with Amazon hitting a new high and its Silicon Valley cohort resisting the negative under-currents.

However, it is hard to see the American markets replicating Tuesdays gains – the Dow Jones Industrials Average was up almost 560 points – against a backdrop of doom-laden economic predictions, including one from the IMF suggesting global output will shrink at a pace last seen during the Great Depression.

The impact from the coronavirus pandemic on the worlds largest economy is expected to become apparent with the latest set of US economic readings.

“This is the first time that data switches from February to March and gives us a data set that was affected by the pandemic,” said James Hughes, analyst at Scope Markets.

“US Retail sales is going to be a reading that could well paint a mixed picture, as hoarding and panic buying could well boost the data in some areas, but lockdown measures will see some severely depressed.”

Turning to the market machinations in London, the oilers Royal Dutch Shell (LON:RDSA) and BP (LON:BP.), off 3% and 2% respectively, effectively dragged the Footsie into negative territory given their index weighting. It seems Saudis pledge to cut output is yet to have an impact.

On the flipside, online grocer Ocado (LON:OCDO) topped the leader board with a 3.8% gain as traders picked it as a potential winner from the coronavirus lockdown.

Sin stocks such as British American Tobacco (LON:BAT), up 3% and Imperial Brands (LON:IMB), ahead 2%, were also well bid.

Proactive news headlines:

Kromek PLC (LON:KMK) has joined the fight to save the worst affected victims of the coronavirus pandemic by turning its manufacturing efforts over to producing medical ventilators. The detection technology group said it will make under licence machinery developed by the Japanese firm Metran. Work will start before the end of the month and Kromek said it expects to have 1,000 units available within eight weeks and 2,000 by 12 weeks.

Rainbow Rare Earths Limited (LON:RBW) shares jumped higher on Wednesday as it told investors that it has now exported a further 100 tonnes of concentrate, in addition to the 75 tonnes sold in February. In a statement, the company noted that in Burundi the impact of the coronavirus (COVID-19) pandemic has been limited to the closure of certain borders and airports, but the import and export of goods continues to be permitted via the land border with Tanzania.

Chesnara PLC (LON:CSN) said its strong financial position will enable it to continue to pay dividends despite the coronavirus (COVID-19) pandemic disruption as it reported full-year 2019 results. The life insurance and pensions group raised its dividend by 3% to 21p for the year ended December 31, 2019, as its economic value – which includes the value of future policies – rose by 7% to £690mln.

Power Metal Resources PLC (LON:POW) has unveiled the conditional acquisition of a 51% interest in the Ditau project in Botswana for £150,000 from Kavango Resources PLC (LON:KAV). The explorer said that it will fund the acquisition through the issue of around 35.7mln new shares at a price of 0.42p each, a 100% premium to its Tuesday closing price. The company added that it has also invested £38,000 into Kavango through a convertible loan note.

Live Company Group PLC (LON:LVCG) has said its first quarter revenues remain on target despite “difficult and unprecedented trading conditions” caused by the coronavirus pandemic. In an update on Wednesday, the media firm reported “strong growth” in the first three months of the year, with £3.3mln of contracted revenue for 2020 and £1.1mln for 2021.

Sure Ventures PLC (LON:SURE) the London-listed venture capital fund, has announced that Sure Valley Ventures, in which it holds a 25.9% interest, has participated in a Series A investment round in Admix (Wam Group ltd) which raised up to $6.1mln. In a statement, Sure Ventures, which invests in early-stage software companies across a range of verticals, noted that Admix has built a monetization platform for the next generation of entertainment, from traditional gaming to emerging channels such as Esports and VR/AR content.

Frontier IP Group PLCs (LON:FIPP) portfolio firm, Pulsiv Solar has been granted a patent in Japan for its power and charging technology. The IP investment firm, which owns 18.9% of Pulsiv, said the company has also integrated its technology into a standard battery charger, significantly improving its energy efficiency and attracting “strong interest” from potential industry partners.

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