- Summary:
- FTSE 100 declined as worthless oil prices and weak corporate earnings. Energy stocks like Shell were the worst performers in the index declining by 5%
The FTSE 100 index dropped by almost 2% as investors focus on the weak oil prices and the ongoing earnings season. Other European indices like the DAX index, CAC index, and Stoxx index declined too.
Crude oil in focus
Energy stocks are an important component of the FTSE index. In fact, they represent about 15% of all companies that are listed in the index. Therefore, when the price of oil falls, energy companies in the FTSE drop as well. As we wrote yesterday, the price of crude oil has become worthless after it dropped below zero. This trend is continuing today.
In fact, the worst performers on the FTSE 100 index are related to oil and other commodities. Royal Dutch Shell, which dropped by more than 5.6% is the worst-performing company. It is closely followed by BP, and Rosneft. Other commodities companies like BHP Group, Glencore, and Anglo American also declined.
Meanwhile, the best-performing companies in the FTSE 100 today are Fresnillo, London Stock Exchange, Admiral Group, and Sainsbury.
Corporate Earnings in Focus
The FTSE 100 has also dropped because of the ongoing earnings season. Today, a number of companies in the index like Avanza Bank, Associate British Foods, Centamin, Kering, London Stock Exchange, SAP, and Reckitt Benckiser will release their earnings.
Going by the trends in the United States, the numbers will likely disappoint. For example, IBM reported weak earnings numbers and warned that companies were moving to preserve cash. This could be a negative sign for a company like SAP.
Just today, Danone, the France-based milk company removed its forward guidance as it reported its earnings. While its revenue increased by 3.7%, it experienced higher transport costs. The company expects this year’s earnings to be weaker. On another sign, PSA, the maker of Peugeot said that its sales dropped by 16% in the quarter. It expects the European vehicle market to weaken by 25% this year.
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FTSE 100 Technical Outlook
The FTSE 100 index declined to a low of £5,665 as investors worried about oil prices and corporate earnings. On the four-hour chart, the price has consolidated along the 50-day and 100-day exponential moving averages. The index has also been moving sideways between the 50% and the 23.6% Fibonacci Retracement. I expect the, index to continue moving lower and possibly move below £5,400, which is along the 23.6% retracement level.