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Markets shaken by oil shock as FTSE loses £125bn

Saudi Arabia and Russia did not agree on continued oil production cuts last week.

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London’s shares closed the day heavily in the red (Giles Anderson/PA)

London’s shares closed the day heavily in the red (Giles Anderson/PA)

London’s shares closed the day heavily in the red (Giles Anderson/PA)

A bloodbath stained trading floors across the world on Monday as traders reacted to a huge drop in the price of oil when Riyadh launched the first salvo in an oil price war against Russia.

Almost £125 billion was wiped off the value of companies on the FTSE 100 index of the UK’s top firms. And with investors already under pressure from the rapidly spreading coronavirus, the bottom fell out of markets on both sides of the Atlantic.

The FTSE 100 lost 7.7% of its value, losing 496.78 points to end the day at 5,965.77.

The price of international oil standard Brent crude was around 25% down at the end of trading in London on Monday, at 36.20 US dollars per barrel. It had rebounded from earlier 35% lows.

The fears of a recession are so high – investors are effectively assuming it’s a given at this pointConnor Campbell, Spreadex

Saudi Arabia said it would cut oil prices after it failed to convince Russia to slash production in order to keep prices high.

It led to worries that recession might hit the economy.

“The fears of a recession are so high – investors are effectively assuming it’s a given at this point – that the market’s carcass is mighty unappealing at the moment,” said Connor Campbell, an analyst at Spreadex.

In London only one of the top 100 companies in the country ended the day in positive territory. Polymetal rose by 7.5p to 1,305.5p.

Even Tesco, which announced it was handing £5 billion to shareholders, was unable to make any gains despite flirting with a rise all day.

The FTSE’s European cousins, the Paris-based Cac and Germany’s Dax, fell 7.9% and 7.4% respectively.

On the other side of the Atlantic, the Dow Jones fell 6.2% and the S&P 500 fell by 5.9%.

Even gold, which fell 0.24% to 1,669.27 US dollars per ounce, was not immune to the turbulence. The precious metal is usually seen as a safe haven against major market fluctuations.

In company news, Tesco’s shares came very close to breaking even, closing down just 0.1p to 240.5p after it agreed a deal to sell its supermarket arms in Thailand and Malaysia, in a move worth around £8.2 billion.

It said it will receive around £8 billion in cash proceeds from the buyer CP Group, Thailand’s biggest conglomerate, and plans to hand £5 billion of this to shareholders in a one-off dividend.

Insurer Phoenix Group has reported a jump in profits as its pension business benefited from UK companies rushing to offload risk ahead of Brexit. It fell 23.2p to 660.7p.

The FTSE 100 firm’s operating profits for the year to December increased by 14.4% to £810 million.

It has seen client numbers increase as UK companies sought to offload pension obligations from their balance sheets to improve their financial flexibility.

FirstGroup dropped 5.7p to 94.5p as an activist investor who failed to overhaul the board of the train and bus operator launched a second attack on the company.

Coast Capital, which has a 10% stake in FirstGroup, has accused bosses of failing to properly engage on its plans to sell the company’s North American bus and coach division.

Polymetal was the solitary riser on the FTSE 100, up 7.5p to 1,305.50p.

The biggest fallers on the FTSE 100 were BP, down 77p to 318.20p, Royal Dutch Shell B, down 290.8p to 1,304.80p, Royal Dutch Shell A, down 281.4p to 1,317.8p, Centrica, down 12.22p to 57.54p, and Aveva Group, down 734p to 3,532.00p.

PA