London close: Analysts remain wary despite selloff in stocks

The FTSE 100 was down 7.69% at 5,965.77, having fallen to as low as 5,891.56 during the session, entering so-called bear market territory following a greater than 20% fall from its previous peak hit in July 2019.

Brent crude was down 24.95% at $36-23 a barrel and West Texas Intermediate was 24.3% lower at $33.20 as Saudi Arabia slashed its export prices by a record amount and pledged to step up oil production from next month after Moscow refused to join the Organization of the Petroleum Exporting Countries' plan to cut supplies further.

Oil prices were off their lows, however, with Brent having fallen to near $31 a barrel at one point, suffering its worst daily fall since the 1991 Gulf War. At the start of the month, Brent crude was trading at $70 a barrel.

As investors looked for somewhere safe to park their cash, the yield on the two-year gilt went negative for the first time in history, meaning the government was now being paid to lend money. Yields more inversely to prices.

Sterling gained against the Greenback, as investors shied away from US shares, trading up 0.78% to 1.3134, albeit off its intra-day high of 1.3200.

Peter Dixon at Commerzbank said: "Although the likes of Warren Buffett will tell you that the time to buy is when others are fearful, it does not feel like that today. There may be better entry points into the market, even if there is a temporary rebound from here."

Analysts at JP Morgan were of a similar view, telling clients first thing on Monday morning: "we believe that the market will stay under pressure, as the fallout from COVID-19 comes through in the activity dataflow, and in reduced corporate guidances.

"We believe one should keep selling into any strength [...] We might eventually get a sustained buying opportunity, but likely not for some time."

How should economic authorities respond to the hit from the coronavirus? Not with interest rate cuts or broad government spending, a former Bank of England Governor said.

In remarks to BBC Radio 4, Mervyn King said: "This virus and its economic impact are not amenable easily just to cuts in interest rates or fiscal expansion. It requires much more targeted measures."

King argued that the Chancellor, Rishi Sunak, should centre his efforts on short-term measures, including supporting firms whose cashflows are taking a hit.

On a related note, the probable damage to GDP from the virus was such that economic growth in the UK now looked set to fall at a 0.3% quarter-on-quarter pace over the three months to June, said Ian Shepherdson at Pantheon Macroeconomics.

And the massive collapse in equity prices and tightening in financial conditions "will pull the rug from under some firms, while others will limit hiring and capex later this year," he added.

"The risk that a one-quarter decline in activity snowballs into a more protracted confidence-led slump is growing by the day, though lower oil prices, as well as fiscal and monetary stimulus, will begin to support growth soon."

"The key downside risk is that the government closes schools soon, in order to slow the outbreak, forcing parents to stop working to look after their children."

There were massive across-the-board losses in stocks, with BP and Royal Dutch Shell unsurprisingly among the worst performers, down 19% and 18%, respectively.

Markets.com chief market analyst Neil Wilson said: "The last time we had an oil shock like this in 2014 the majors cut costs aggressively and divested assets. There will be serious damage done this time, and it will last. You’ve got to seriously question whether BP and Shell will be able maintain dividends when crude is trading at $30."

On the FTSE 250, Premier Oil, Tullow Oil, Hunting, Weir Group, Wood Group and Petrofac all took a beating.

Tesco almost finished higher on Monday, seeing the day off just 0.04% lower, with Sainsbury's and Morrisons holding up pretty well given the circumstances, and both well off their sesion lows by the end of trading.

The shares were no doubt underpinned by the prospect of more coronavirus panic-buying, with toilet paper and UHT milk flying off supermarket shelves as consumers prioritise good hygiene and comforting cuppas.

Gold miner Polymetal on the other hand did manage the feat, despite a surprising dip in gold futures on the back of weakness in the US dollar.

Market Movers

FTSE 100 (UKX) 5,965.77 -7.69%
FTSE 250 (MCX) 17,547.15 -6.40%
techMARK (TASX) 3,534.90 -5.85%

FTSE 100 - Risers

Polymetal International (POLY) 1,305.50p 0.58%
Tesco (TSCO) 240.50p -0.04%
easyJet (EZJ) 977.80p -2.22%
Hikma Pharmaceuticals (HIK) 1,817.00p -2.23%
Croda International (CRDA) 4,362.00p -2.42%
Morrison (Wm) Supermarkets (MRW) 180.75p -2.46%
Sainsbury (J) (SBRY) 205.80p -2.51%
GlaxoSmithKline (GSK) 1,548.00p -2.86%
International Consolidated Airlines Group SA (CDI) (IAG) 418.50p -2.92%
Pearson (PSON) 537.20p -3.28%

FTSE 100 - Fallers

BP (BP.) 318.20p -19.48%
Royal Dutch Shell 'B' (RDSB) 1,304.80p -18.23%
Royal Dutch Shell 'A' (RDSA) 1,317.80p -17.60%
Centrica (CNA) 57.54p -17.52%
Aveva Group (AVV) 3,532.00p -17.21%
BHP Group (BHP) 1,111.40p -16.57%
Carnival (CCL) 1,658.00p -15.54%
Evraz (EVR) 232.30p -13.68%
Schroders (SDR) 2,339.00p -13.02%
Glencore (GLEN) 152.60p -12.33%

FTSE 250 - Risers

Avon Rubber (AVON) 2,440.00p 0.63%
Coats Group (COA) 56.90p 0.62%
Domino's Pizza Group (DOM) 284.70p 0.25%
Sirius Minerals (SXX) 5.49p 0.18%
Law Debenture Corp. (LWDB) 570.00p 0.00%
Millennium & Copthorne Hotels (MLC) 687.00p 0.00%
Daejan Holdings (DJAN) 7,980.00p -0.13%
Finablr (FIN) 40.44p -0.15%
Fresnillo (FRES) 657.80p -0.81%
NextEnergy Solar Fund Limited Red (NESF) 115.00p -0.86%

FTSE 250 - Fallers

Premier Oil (PMO) 26.21p -57.47%
Tullow Oil (TLW) 16.00p -31.77%
Cairn Energy (CNE) 86.20p -29.23%
Energean Oil & Gas (ENOG) 440.50p -26.58%
Aston Martin Lagonda Global Holdings (AML) 209.10p -21.36%
Hunting (HTG) 212.80p -21.36%
Capita (CPI) 55.70p -19.23%
Petrofac Ltd. (PFC) 220.00p -18.37%
Aggreko (AGK) 554.40p -17.45%
Wood Group (John) (WG.) 276.20p -15.49%