Gloomy quarterly results from banks and a clutch of other firms saw the FTSE 100 post its worst session in five weeks on Thursday, while uncertainty about U.S. elections and a collapse in economic growth in the world’s largest economy also weighed.
Global sentiment took a hit as a 32.9% plunge in U.S. second quarter economic growth, albeit lesser than expected, and a tweet from U.S. President Donald Trump about possibly delaying November elections unnerved markets.
“There’s already heightened uncertainty around the election ... and the potential for a fiscal policy regime change. This just adds to that uncertainty,” said Phil Orlando, chief equity market strategist, at Federated Hermes in New York.
The blue-chip FTSE 100 .FTSE ended 2.3% lower on broad-based losses, with Lloyds Banking Group (LLOY.L) sliding 7.6% to an eight-year low after swinging to a rare pre-tax loss in the first half of 2020.
Standard Chartered (STAN.L) tumbled 6.2% as the lender posted a 33% slump in first-half profit after a six-fold jump in credit impairment charges.
The mid-cap FTSE 250 .FTMC slipped 1.3%, led by a 12% fall for car dealer Inchcape (INCH.L) as impairment charges pushed it to losses.
The export-laden FTSE 100 is on track to record monthly declines in July after rallying since April as faltering economic data and surging COVID-19 cases have dented optimism over a swift post-pandemic economic recovery.
Oil majors .FTNMX0530 BP (BP.L) and Royal Dutch Shell (RDSa.L) lost 3.6% and 5.5% as crude prices fell on fears that more COVID-19 containment measures could hurt demand. [O/R]
London shares of travel company TUI (TUIT.L) slipped after it said it will shut 166 stores in the UK and Ireland due to the downturn in travel caused by the coronavirus - a move that will lead to more losses in the battered sector.
AstraZeneca (AZN.L), meanwhile, rose 1.6% on an upbeat second quarter and reiteration of 2020 forecasts, while defence company BAE Systems (BAES.L) jumped after announcing plans to restart dividend payouts.
European shares sank to a one-month low on Thursday, hit by underwhelming earnings reports, a dire reading of the German economy’s health and U.S. President Donald Trump raising the possibility of delaying November’s presidential election.
The pan-European STOXX 600 index closed 2.2% lower, erasing all its gains for the month, while Germany's DAX .GDAXI slumped 3.5%, leading regional losses.
Risk assets across the globe sold off sharply after Trump tweeted “delay the election until people can properly, securely and safely vote???”, although the U.S. constitution bestows that power on Congress.
Growth-sensitive sectors like banks .SX7P, insurers .SXIP, automakers .SXAP and energy firms .SXEP bore the brunt of the sell-off in Europe, falling between 3.5% and 4.3%.
European equities had already fallen after a preliminary reading showed Germany’s gross domestic output shrank by 10.1% in the second quarter, worse than the 9% contraction predicted by economists in a Reuters poll as the COVID-19 pandemic took its toll.
“Germany’s record drop in GDP fuels extra concern that the rest of Europe might have a deeper slump,” Edward Moya, a senior market analyst at Oanda, wrote in a note.
The data had investors worried that an economic recovery from coronavirus crisis might take longer than expected, with numbers from the United States sparking similar concerns.
About 40% of the companies listed on the STOXX 600 have reported second-quarter earnings so far, and 64% of those have surpassed beaten-down profit expectations, according to Refinitiv data.
However, there were a slew of disappointments on Thursday, with Britain’s Lloyds Banking Group (LLOY.L) falling 7.6% as it swung to a rare pretax loss in the first half and Spain’s BBVA (BBVA.MC) dropping 8.1% as it reported a near 50% decline in net profit.
Automakers also took a hit as Germany’s Volkswagen (VOWG_p.DE) unveiled a first-half operating loss and slashed its dividend, while France’s Renault (RENA.PA) posted a record net loss of 7.29 billion euros (6.59 billion pounds) in the first half of the year.
“When companies report in-line or quasi in-line numbers, that’s no longer good enough for the markets to reward them,” said Maarten Geerdink, head of European equities at NN Investment Partners.
Among the bright spots, Anheuser-Busch InBev (ABI.BR) gained 1.4% after saying it was encouraged by a global beer sales recovery in June.
British drugmaker AstraZeneca (AZN.L) rose 1.6% as it backed its 2020 forecasts.