The FTSE 100 fell dramatically today after oil giant Shell slashed its dividend in response to the plunge in demand for oil amid the coronavirus pandemic and Lloyds profits slumped.
The sell-off gathered speed throughout the day, with the FTSE 100 index ending 3.5 per cent lower at 5,901 points.
It came after a dramatic surge yesterday, when the index rose past 6,000 points. The jump was spurred by US drug firm Gilead’s announcement that its coronavirus drug remdesivir had shown positive signs.
Investors were in a pessimistic mood today, however, as dire economic data and earnings reports spread a cloud over markets.
In Europe, the continent-wide Stoxx 600 index ended two per cent lower. Germany’s Dax fell 2.2 per cent and France’s CAC dropped 2.1 per cent.
Stocks were hit by data that showed that the Eurozone economy shrank by 3.8 per cent in the first quarter, the fastest pace on record. Europe’s banks slipped after the European Central Bank left interest rates and its bond-buying programme on hold.
US markets have fallen in morning trading after the number of Americans making new jobless claims surged again. Roughly 30m people have made new unemployment insurance claims in the past six weeks.
Shell dividend cut batters FTSE 100
In the UK, the FTSE 100 was pummeled by Shell’s dividend cut and a plunge in profit at Lloyds Bank.
Shell shares finished 11 per cent lower after it slashed its dividend by two-thirds. The oil major’s results showed the heavy toll the coronavirus crisis is having on energy demand.
Lloyds said its profit fell by 95 per cent in the first quarter as it set aside cash to deal with loan losses. The lender’s shares finished seven per cent lower.
“Yesterday’s optimism appears to have been short-lived,” said Joshua Mahony, senior market analyst at trading platform IG.
“There is no doubt that this economic suffering will be drawn out if the views of central bankers are anything to go by,” he said. Both the ECB and US Federal Reserve have suggested a quick recovery is unlikely.
However, markets are still on track for one of its best months on record in April, despite today’s falls. The US’s S&P 500 has risen around 12 per cent this month.
Stocks have been supported by unprecedented levels of stimulus from central banks and governments. Yet some analysts question whether the rally can continue.
Edward Moya, senior market analyst at currency platform Oanda, said: “The economic recovery will be a long drawn out one and that might mean some investors might wait and see if this rapid recovery [in stocks] finally delivers a modest pullback.”