The FTSE 100 has endured its worst one-day loss for a month as the effects of lockdowns on the global economy become clearer and weigh on investor sentiment.
A rally of recent weeks, that saw the blue chip index recapture some of the ground lost during the coronavirus-linked meltdown that began in February, came to a crashing halt on Thursday amid a slew of negative news – much of it worse than the market had expected.
A key driver for the FTSE was the first cut in the dividend from Royal Dutch Shell since World War Two as it gets to grips with a collapse in oil costs – a consequence of a lack of demand
The stock, a staple of pension funds, fell almost 11% while shares in rival BP were also hit – falling 6%.
Energy stocks accounted for almost a quarter of the FTSE’s decline. It closed the day 3.5% down at 5,901.
It dented a recovery of 4% over the month as a whole, which was the best performance since April 2018 though it remains 21% down in the year to date.
Markets in France and Germany were more than 2% lower as wider sentiment was spooked by worse than expected figures showing a 3.8% contraction in eurozone economic growth during the first quarter of the year – figures covering only two weeks of lockdown conditions.
There was also, analysts said, a sense of disappointment after the European Central Bank (ECB) failed to expand the scope of its asset purchase programme while keeping core interest rates at record lows.
That was despite its new president, Christine Lagarde, warning that an “unprecedented” slump was looming.
A day after it was revealed that the US economy shrank by 4.8% between January and March, new figures showed total US claims for unemployment benefits had risen above 30 million.
That was a rise of 3.8 million on the previous week.
Some risk-off selling in New York failed to prevent the S&P 500 recording its best month for 33 years.
In London, market analysts pointed to weak corporate earnings dragging the FTSE lower more widely on Thursday.
They cited companies including Lloyds Banking Group, which lost 7% on Wednesday as first quarter profits were wiped out by provisions for bad loans.
But AJ Bell investment director, Russ Mould, said Shell’s dividend cut sent a wider signal.
He wrote in a note to clients: “Shell’s decision is devastating to investors across the country as so many people own its shares directly or through their pension.
“Shell’s actions could also lead to BP potentially reassessing its position in the near future.”