The FTSE 100 is on track for its third straight weekly decline, and continues to lose ground at the end of the week. A troika of factors is weighing on UK stocks:
1) Ebola is the new geopolitical risk to watch out for after a British national died of the disease even though he hadn’t been to Africa. Now fears of a European outbreak are threatening to grip markets.
2) The IMF has also contributed to this sell-off by cutting its global growth forecast for 2015.
3) Fears about a potential recession in Germany are starting to hit the UK.
The FTSE 100 has made a fresh annual low today at 6,350, which opens the way to the June 2013 low at 6,029 – ahead of the critical 6,000 level. Although we are some way from this key support level, if the current pace of selling pressure is kept up, then we could be there sooner than some may think.
The other thing to note is the VIX, we will talk more about the Vix in another post, but it jumped to its highest level since February on Thursday. If we continue to see the Vix push higher then it would open the door to further declines in global indices.
Corporate News:
• Materials and energy stocks are leading the FTSE lower today as global growth fears start to bite.
• Financials are the “best” performing sector so far, although it is not a typically defensive sector.
• Next week sees the start of the US Q3 earnings season; stocks have had a bad start to Q4 on the back of the factors listed above. If companies’ future outlooks are also glum, this could add to the global selling pressure on the markets.
Individual movers:
• Carnival (LONDON:CCL), the cruise ship operator, is lower today as Ebola fears could knock bookings. It is down some 2% today. When the Sars virus hit ten years ago, Asian tourism took a major hit. If we see cases of Ebola spread, then this is likely to be bad news for airlines and for the global tourism industry. Thus, as long as Ebola grabs the headlines, Carnival could come under pressure.
• Oil companies: after WTI (US oil) fell into a technical bear market on Thursday (it has dropped more than 20% since peaking in July), oil and gas companies have come under pressure. Tullow Oil Plc (LONDON:TLW) oil is lower along with BP (LONDON:BP) and Royal Dutch Shell (LONDON:RDSa).
BP made a fresh annual low today, which opens the way to 416p, the low from Dec 2012, then 390p – the low from June. Although the oil price has fallen sharply, so a lot of the bad news about growth is already priced in, the technical picture does not suggest that the slide in the oil price will stop any time soon, which could continue to weigh on the FTSE’s energy sector.
•Vodafone (LONDON:VOD): its price is down nearly 1.5% today on fears that the company could abandon its dividend. This is a big deal for the stock price, as it has one of the highest dividend yields on the FTSE.
Another reason to question your Vodafone holding is analyst concerns that the company is coming up against greater competition and may not be worth its large premium over some of its smaller rivals. These are pretty fundamental shifts in the market’s perception of Vodafone, expect a large decline if we see a cut in the dividend. Until then it could continue to drift lower.
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