FTSE 100 index plunges into ‘bear market’ territory as oil price rout wipes another £52bn off top-flight share values
- Footsie plunged 203 points or 3.5% to close at 5,673
- That means £52bn has been wiped off blue-chip share values today
- Now more than 20% below April 2015’s 7,103 high – firmly a bear market
- Panic over oil price after IEA warned market ‘could drown in oversupply’
Battle-weary global investors endured fresh share price falls today as the ongoing oil price rout and falls on Asian stock markets overnight sent London’s FTSE 100 index into ‘bear market’ territory.
The Footsie plunged 203.2 points to close at 5,673.5, a 3.5 per cent drop that took the blue-chip index to its lowest level since November 2012. A negative start on Wall Street added to the morning’s oil-related woes and helped to wipe £52billion off top-flight share values by the end of trading.
The new fall left the Footsie more than 20 per cent below April 2015’s high of 7,103, which puts London blue-chips firmly in a bear market. The London market has seen over £160billion wiped off the value of top flight shares in the first three weeks of the year due to slowing growth in China and falling oil prices.
On wall Street, the Nasdaq 100 and Down Jones were nursing falls of 3.0 per cent.
The latest hammering for equities comes after the International Energy Agency warned that the world oil market ‘could drown in oversupply’ as a rise in Iranian output offsets production cuts elsewhere. That sent Brent crude down 3 per cent to $27.67 a barrel, matching a 12-year low it hit at the start of the week.
Oil prices have collapsed by more than 70 per cent since their peak of around $115 a barrel in summer 2014, as large producers such as Saudi Arabia maintain production levels, putting US shale rivals under pressure.
Chris Beauchamp, Senior Market Analyst at IG said stock market bears had been enjoying themselves as the index touched levels not seen since late 2012.
‘The UK market has not been alone, as Europe and now the US join in with the panic of January 2016,’ he said.
‘Bond yields are heading lower too as investors shun risky assets and stash their money in any safe place going. The main driver of the falls continues to be oil, which has pushed onwards to fresh lows, taking oil stocks with it.’
Global traders are worried that big oil and commodities stocks will be doomed by further oil price falls and that dividends will be slashed. The are also concerned that many banks are too exposed to these stocks and other industrials that will be further hit by a Chinese slowdown.
It is also feared that that the commodities price rout indicates that there is more bad news yet to be revealed on the state of China’s economy. Asian stock markets suffered overnight with 3-4 per cent falls for the Tokyo and Hong Kong markets.
In London, oil giant Shell fell almost 7 per cent, or 92p to 1277.5p, after it said it expects full-year underlying earnings to tumble to between $10.4billion (£7.3billion) and $10.7billion (£7.6billion), due to falling oil prices.
The update comes ahead of a shareholder vote next week on its 55billion US dollar (£38billion) deal to buy gas giant BG Group.
BP also fell 4 per cent or 14.3p to 328.2p.
The biggest fallers in the FTSE 100 Index were Glencore down 7.8p at 71.2p, Anglo American down 17.8p at 221.1p, BHP Billiton down 46.2p at 580.9p and Royal Dutch Shell down 92p to 1277.5p.
BHP Billiton said that it expected no recovery in iron ore or coal prices in the next few years, with global markets suffering from oversupply and a slowdown in China, the world’s biggest metals consumer.
Stock markets were in the red across Europe with Germany’s Dax down 3 per cent and the Cac-40 in Paris also down a similar amount.
Sterling recovered from yesterday’s seven-year low against the dollar after data showed the UK’s unemployment rate unexpectedly falling to its lowest in a decade, even as wage growth slowed.
Official data showed the jobless rate unexpectedly fell to 5.1 per cent, its lowest since early 2006, but wage growth in the three months to November was its slowest since February.
But sterling is still very weak against the dollar in historical terms at a rate of $1.417 to the pound. It was hit yesterday by comments from Bank of England Governor Mark Carney that sent expectations for a rate rise even further down the road.
Against the euro, sterling traded at €1.291 – stronger than a one-year low of €1.289 hit earlier in the day but 10 per cent lower than the €1.437 a pound bought before Christmas.
The International Monetary Fund added to the gloom yesterday by cutting global growth forecasts because of easing growth in China and rising geopolitical tensions. In its latest World Economic Outlook, the IMF predicted world growth of 3.4 per cent this year followed by 3.6 per cent in 2017.
This is a cut in growth of 0.2 per cent in each year from when the fund published its last forecasts in October.
