LONDON MARKET MIDDAY: Price War Hits Oil Stocks, Sending FTSE Tumbling

(Alliance News) - Oil stocks led the leg lower on Monday after Saudi Arabia launched a price war, while Italy's lockdown of a quarter of its population amid continued growth in coronavirus cases dealt a further blow to risk appetite.

The FTSE 100 was down 418.95 points, or 6.5%, at 6,043.60. While still dramatically lower, the blue-chip index was off its worst levels for the session, having traded below 6,000 in early dealings.

The FTSE 250 was down 927.62 points, or 5.0%, at 17,818.89 at midday, and the AIM All-Share was down 5.2% at 806.31.

The Cboe UK 100 was down 6.6% at 10,239.19, the Cboe UK 250 was down 5.3% at 15,846.32, and the Cboe Small Companies down 2.4% at 11,026.61.

In European equities on Monday, the CAC 40 in Paris was down 6.2%, while the DAX 30 in Frankfurt was down 6.3%.

Markets were shaken as oil prices plunged after top exporter Saudi Arabia started a price war.

Saudi Arabia launched an all-out oil war Sunday with the biggest cut in its prices in the last 20 years, Bloomberg News reported, after a failure by cartel OPEC and its allies to clinch a deal to cut production.

A meeting of main producers was expected to agree to deeper cuts to counter the impact of the new coronavirus – but Russia refused to tighten supply.

In response, the Gulf powerhouse cut its price for April delivery by USD4-6 a barrel to Asia and USD7 to the US, with Aramco selling its Arabian Light at an unprecedented USD10.25 a barrel less than Brent to Europe, Bloomberg reported.

Brent oil was quoted at USD35.36 a barrel Monday midday, collapsing from USD46.00 late Friday. The North Sea benchmark sank to a low of USD31.26 overnight - its worst level since January 2016.

"The rationale must surely be that in sending oil prices to their lowest levels since 2016, and their biggest one day fall since the days of the 1991 Gulf War, the action might prompt the Russians back to the table to agree a production cut. This seems a high stakes gamble given how high the Saudi breakeven price is," said Michael Hewson at CMC Markets.

London-listed oil majors BP and Royal Dutch Shell slumped. BP was down 17% while Shell 'A' shares were down 13% and 'B' shares down 13%.

Shares in Saudi Aramco, the kingdom's national oil company and the world's largest oil-producing firm, were down 6.3%. In New York, shares in ExxonMobil and Chevron are both pointed to a 12% fall at the open.

"The slide in the oil price, along with further outbreaks of coronavirus across Europe, and the Italian government imposing a lock down across Northern Italy and in around the Milan region, has accelerated the rush for the exits in stock markets sending US bond yields to new record lows," said Hewson.

Around 16 million people, more than a quarter of the Italian population, are in a state of lockdown until April 3 as the infection rate of Covid-19 continues to rise.

Italy has seen the most deaths from COVID-19 of any country outside China, where the outbreak that has now infected 100,000 worldwide began in December. Italy has reported over 7,000 cases, the third highest globally behind China and South Korea.

However in China, the number of new cases reported Sunday nationwide was the lowest in weeks, with nearly all 44 of them in the outbreak epicentre Wuhan. The government has hinted it may soon lift the quarantine imposed on locked-down Hubei province, where some 56 million people have been effectively housebound since late January and of which Wuhan is the capital.

While equities and oil sank, safe haven assets such as gold and the Japanese yen were in demand.

Gold was quoted at USD1,679.88 an ounce on Monday, up from USD1,665.00 late Friday. The dollar was quoted at JPY102.31 versus JPY105.23 late Friday.

The pound was quoted at USD1.3067 on Monday, up from USD1.3020 at the London close Friday. The euro was quoted at USD1.1416, up from USD1.1325 late Friday.

In New York, stocks are pointed to dive at the open. The Dow Jones and S&P 500 are both called down 4.9%, while the Nasdaq is expected to sink 4.8%.

While there were no stocks in the green in the FTSE 100 on Monday, Tesco was posting just minor losses, with shares down 0.5%, as it agreed to sell its Thai and Malaysian operations.

The supermarket chain has agreed to sell the operations to a combination of CP Group entities for USD10.6 billion on a cash and debt free basis. Tesco also said it will return GBP5.0 billion to its shareholders via a special dividend.

The grocer said the sale of these south-east Asian businesses will further de-risk its business by reducing indebtedness through a GBP2.5 billion pension contribution that is expected to eliminate the current funding deficit and "significantly" reduce the prospect of having to make further pension deficit contributions in the future. The disposal will also further simplify Tesco's operations, it said.

In the FTSE 250, oil firms were sharply lower amid the collapse in Brent prices. Premier Oil was down 52%, Tullow Oil down 27% and Cairn Energy down 18%.

Network International was down 12% as the payments solutions provider said it has seen a reduction in client transaction volumes in recent weeks amid the coronavirus outbreak.

Network International reported pretax profit for 2019 of USD65.6 million compared to USD57.7 million a year earlier, as revenue rose by 12% to USD334.9 million from USD297.9 million.

However, the firm noted that coronavirus is hitting global travel and spending patterns.

"Although we are diversified through our presence in multiple geographies and across the payments value chain, we have seen some reduction in client transaction volumes in the recent weeks. The full impact remains uncertain and will depend on the length and severity of the effect of the coronavirus on economic activity in our markets, and we will continue to monitor the situation closely," said Network International.

By Lucy Heming; lucyheming@alliancenews.com

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