Irish and European shares turned lower in early trading on Wednesday, following two days of tentative gains, as US president Donald Trump changed his tone on coronavirus crisis and UK banks joined peers elsewhere in suspending dividends.
The Iseq index, which slid about 30 per cent in the first quarter of the year, dropped 3.2 per cent by 8.35am, while the pan-European Stoxx index declined by 2.4 per cent after Mr Trump struck an unusually sombre tone in a briefing on Tuesday evening, warning of a “painful” two weeks ahead. The US is grappling to get the outbreak under control and New York City’s death toll topped 1,000.
The pan-European Stoxx 600 index lost 2.5 per cent, while the FTSE 100 in London dropped 3.2 per cent.
Shares in UK banks dived after companies in the sector suspended dividend payments amid pressure from regulators. Shares of Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered dropped between 3 per cent and 7 per cent.
In Dublin, AIB and Bank of Ireland, who each moved on Monday to drop their immediate dividend plans, each saw their shares decline by 3.4 per cent in early trading on Wednesday.
Elsewhere, food companies were also under pressure, with Glanbia off 5.3 per cent and Kerry Group down 2.4 per cent. Ferries operator Irish Continental Group slid 4.3 per cent.
Equities are beginning the new quarter with more declines, hot on the heels of the worst quarter for global shares since the end of 2008. Investors compensating for the loss of dividend income could spark a fresh wave of selling, while analysts are dashing to update earnings forecasts to take into account the looming global recession and the slump in stock prices.
“Markets are looking at global equities in a new light, one with no buyback support and no dividends,” said Chris Weston, head of research at Pepperstone Financial Pty Ltd. The earnings season is likely to trigger a decline in consensus SandP 500 profit expectations which “are far too high relative to dividend futures,” he said.
The coronavirus is set to throw the world into recession, and economists are becoming less convinced about the potential for a strong snapback in growth. China’s manufacturing PMI surged back into growth territory in March, offering a ray of hope that the world’s second-biggest economy may be on its way to recovery.
"In the US, the data remains fairly worrying and the peak may well be a few weeks on," Bob Parker, an investment committee member at Quilvest Wealth Management, told Bloomberg TV. "The economic data is clearly starting to improve in March in China after a very weak January and February."
In its latest measure to combat the economic fallout from the pandemic, the Federal Reserve said Tuesday it was establishing a temporary repurchase agreement facility to allow foreign central banks to swap any Treasury securities they hold for cash. That's yet another step beyond the actions it took in the 2008 financial crisis.
Elsewhere, WTI oil fluctuated at about $20 a barrel, kicking off a month which is likely to see demand plummet further at a time when the world’s top exporters are pumping more in a damaging battle for market share.
- Additional reporting, Reuters, Bloomberg
