With US oil prices back in positive territory after the previous week’s history-making decline into negative territory, the scars from plummeting prices were laid bare to see for some of the FTSE 100’s heavyweights this week.
BP’s quarterly profit tumbled by two-thirds whilst its debt climbed to its highest on record. The energy major did however maintain its dividend for now, whilst giving the market a few hints as to future payments, citing exceptional uncertainty regarding future oil prices.
The announcement was in stark contrast to Shell, who on Thursday was forced to cut its dividend for the first time since WWII. Having always maintained its payout, even through the Gulf Wars, global economic crises and dozens of oil price crashes, the Dutch oil major has taken pride in its dividend, giving some context on just how significant the economic havoc following the outbreak of COVID-19 has been. Shell also suspended the next tranche of its share buyback programme and said it was reducing oil and gas output by nearly a quarter after its net profit almost halved during the first three months of 2020. Unsurprisingly given such a dire update, the company’s shares fell over 11%, dragging the rest of the market down with it, with the FTSE 100 settling down 3.5%.
Offshore and onshore, the effects of COVID-19 were felt far and wide this week, as the UK high street reported its worst month since the Global Financial Crisis. With the recent stockpiling mania that propped up food and toilet roll sales starting to fade, Tuesday’s numbers showed the sector was on track for a historic decline. Survey data dropped to -55 in April from -3 in March, matching a record low set in December 2008.
The week was rounded off with more hopes of central bank stimulus, this time in Europe. The European Central Bank (ECB) moved policy around the edges on Thursday but made sure it kept the door wide open to further stimulus including purchases of junk bonds, often issued by riskier companies that have a relative lower chance of paying it back. The move was not enough to stop markets lurching lower on Thursday and Friday as a cocktail of poor UK housing data coupled with US President, Donald Trump's, threats to place sanctions on China due to the outbreak of COVID 19.
The week ahead
May the 4th be with Europe during the opening of the coming week as the continent’s largest economies release a collection of Purchasing Manager Index (PMI) data that should tell us just how badly bruised the bloc’s economy is after the COVID-19 outbreak has ravaged much of southern Europe particularly.
Perhaps the most interesting to observe will be both France and Germany’s as they comprise the majority of the Eurozone’s economy, both releasing Services and Manufacturing data. The numbers are released in conjunction with Sentix Investor Confidence, a survey of about 2,800 investors and analysts which asks respondents to rate the relative six-month economic outlook for the Eurozone. With a reading above 0 indicating confidence, and below pessimism, March’s reading fell to -42.9 from January’s 7.6, which shows just how negative those in the know are over the future environment for Europe.
The first weekend of May also ushers in “Super Thursday” down on Threadneedle Street. With minutes released from the Bank of England’s most recent meeting, and the results of a vote amongst the Monetary Policy Committee on whether to move base rates, the news should make for fascinating reading. With the domestic economy, in the grips of the Coronavirus, inciting record amounts of fiscal stimulus from No 11, it will be interesting to see what the central bank makes of the economy’s health and what they can do to help.
The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings, allowing us to gauge how inflation may manifest in the world’s largest economy. However, with the Fed having already fired its “Bazooka”, many will be wondering what the central bank the other side of the pond can do to stem the rising level of unemployment.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in May 2020.