European shares dip, oil prices fall sharply

Bank stocks hammered on dividend suspension

On Friday, the European Central Bank ordered banks to suspend their shareholder dividends. Photograph: AFP

On Friday, the European Central Bank ordered banks to suspend their shareholder dividends. Photograph: AFP

 

European shares fell for the second straight session on Monday while oil prices fell sharply with fears that the global coronavirus shutdown could last months.

The pan-European STOXX 600 index clawed back some gains from its morning lows but was still 0.85 per cent off by lunchtime while the Iseq all-share index stood 1.65 per cent lower.

Among the losers on the Iseq were the banks after AIB and Bank of Ireland suspended their shareholder dividends in line with guidance from the European Central Bank. Bank of Ireland shed 6.97 per cent while AIB slipped 9.4 per cent.

On the broader European market, the banking sector tumbled another 2.5 per cent, bringing its monthly losses to more than 28 per cent, with UniCredit, ING and ABN Amro among the first set of lenders to comply with the ECB’s appeal to freeze dividends in a bid to shore up credit.

Meanwhile, oil prices fell sharply with US crude briefly dropping below $20 and Brent hitting its lowest level in 18 years, on heightened fears that the global coronavirus shutdown could last months and demand for fuel could decline further.

The price of oil is now so low that it is becoming unprofitable for many oil companies to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are almost full. “Global oil demand is evaporating on the back of COVID-19-related travel restrictions and social distancing measures,” said UBS oil analyst Giovanni Staunovo.

Stimulus

The benchmark European index ended Friday with one of its best weekly percentage gains since the 2008-09 financial crisis, as a raft of global stimulus measures offered hope that the economic damage from the outbreak could be contained. However, the index was still set for its worst first quarter on record, losing more than $3.3 trillion in value, as a rapid increase in the number of coronavirus cases forced governments to extend containment measures that have brought business activity to a grinding halt.

The internationally focused FTSE 100 index slipped 1.06 per cent, with shares in aerospace suppliers Rolls-Royce, Meggitt and Senior plunging between 13 per cent and 15 per cent after another bearish call from JPMorgan. The US bank, which assumes a 38 per cent drop in global air traffic in 2020, cut earnings estimates for the sector, and expects credit rating firms including the S&P to downgrade Rolls-Royce to non-investment grade.

A senior medical officer said the lockdown in Britain could last months and only be gradually lifted, raising fears of a deep slump in the economy. – Reuters