FTSE 100 sinks deeper as oil prices continue collapse
The FTSE 100’s losses mounted up today as US oil prices returned into negative territory despite Europe beginning to relax coronavirus lockdowns.
London’s blue-chip index dropped 2.25 per cent by 2pm, after opening around 1.3 per cent down this morning. The FTSE 100 lost 131 points to hit 5,681 points as oil majors and energy stocks dragged it into the red.
It climbed roughly half a per cent yesterday.
Today however, Evraz sank 9.9 per cent to 237.4p while Antofagasta sank 6.5 per cent. Miners Glencore and Anglo American both dropped over six per cent.
Oil prices collapse sinks FTSE 100 stocks
BP and Shell tanked almost five per cent on slumping oil prices. The price of US oil turned negative for the first time ever last night as it became more expensive to store than buy the commodity,
Today the trend continued. A contract setting the US oil price for May collapsed but June’s price contract turned the same way, plunging 24 per cent to $19.73. And Brent crude also plummeted 7.5 per cent to $24.
Connor Campbell, a financial analyst at online trader Spreadex, called the oil prices collapse “one of the starker economic warning signs the markets have been handed in recent weeks”.
Trading platform IG’s chief market analyst Chris Beauchamp called oil’s stark decline a “complete breakdown of normality” for the commodity.
“While the May contract is now banished to the history books, it looks like the June contract is going the same way, falling below $20 and then taking out $19 and $18 in short order for WTI, while Brent crude has met the same fate,” he added.
“We are witnessing markets finally play catch-up to the reality on the ground in the oil market. Huge oversupply and non-existent demand have combined with nearly full storage facilities to drive complete dislocation in the crude oil market.”
The oil fallout extended far beyond energy stocks, with banks, miners and many other sectors also suffering. Economic bellwether stock Lloyds Banking Group dropped 2.5 per cent and Royal Bank Scotland slipped two per cent.
A huge 1.1 per cent drop in the pound as investors quit stocks to buy up the dollar softened the blow for the FTSE 100, which has plenty of listed exporters to benefit from cheaper sterling.
European stocks plunge as retailers quake
But European stocks sank further without any such cushion. Germany’s Dax sank 3.3 per cent on some dire investor sentiment data. And France’s Cac dropped 3.2 per cent.
The Euro Stoxx 600 index declined 2.8 per cent.
And dire updates from Primark and John Lewis this morning showed the toll coronavirus is taking on the retail industry.
“Unsurprisingly, consumer demand for big ticket items has dropped rapidly,” Beauchamp said. “The effects will be felt across the [retail] sector. Even assuming lockdowns begin to ease next month, it seems unlikely that demand will recover instantly, promising a tough few months for the sector, if not more.”
The UK’s FTSE 250 index of smaller companies was down 1.6 per cent. Oil services firm Petrofac had fallen 6.6 per cent to 156.5p.
The unprecedented spectacle of oil prices turning negative has shaken investors. And it has underlined just badly coronavirus lockdown measures have hit demand.
Oil prices fell to just above minus $40 yesterday. That meant producers were paying people to take the oil off their hands, a cheaper option than stopping production.
Jim Reid of Deutsche Bank called it “one of the more remarkable moments in financial history”.
Reid added: “The fact that June is currently still trading [positively] should not be seen as a guarantee that this sort of price action could not happen again upon June’s expiry if demand hasn’t increased over the next two months.”
US stocks hit hard by oil price crash
US markets reacted badly yesterday evening. The S&P 500 closed 1.8 per cent lower and the Dow Jones tumbled 2.4 per cent.
David Madden, market analyst at trading platform CMC Markets, called it “no surprise” to see oil stocks like Exxon Mobil in the red.
Yet he said that the “negative move on Wall Street last night must be put into context against the impressive gains that were posted last week”.
Overnight in Asia, Japan’s Nikkei 225 dropped two per cent and Hong Kong’s Hang Seng fell 1.9 per cent. China’s Shanghai composite slipped 0.9 per cent.
New Trump travel ban spooks FTSE 100
Investors are also concerned about President Donald Trump’s move last night to temporarily halt immigration to the US.
Although the legal details have yet to emerge, Trump tweeted yesterday: “In light of the attack from the Invisible Enemy, as well as the need to protect the jobs of our GREAT American Citizens, I will be signing an Executive Order to temporarily suspend immigration into the United States!”
Safe-haven assets such as Germany Bunds and the dollar were slightly higher this morning. The yield on the 10-year German Bund slipped two basis points (0.02 percentage points) to minus 0.47 per cent.
The dollar was 0.2 per cent higher on an index that tracks it against other currencies.