More bad banking news pulled the FTSE 100 lower after Lloyds (LLOY) swung into the red, while the Federal Reserve’s added to investors’ woes with a warning over the US economy.
The blue chip index dropped 48 points, or 0.7%, to 6,083 as Lloyds warned it had made provisions to £3.8bn of bad bank loans, the day after peer Barclays (BARC) disappointed markets with a £1.3bn provision.
AJ Bell analyst Russ Mould said the banking sector had ‘its hands tied behind its back’ and Lloyds results are ‘thoroughly miserable and it is certainly going to be a tough period ahead’.
Lloyds’ poor results had a knock on effect on financials, with insurers also taking a hit: Prudential (PRU) fell 3.8% to 288p, Legal & General (LGEN) declined 3% at 218p, and Aviva (AV) was down 2.7% at 270p.
There was some good news from Royal Dutch Shell (RDSA), which managed to avoid a quarterly loss but said asset values had been impacted by a £17bn impairment charge.
Spreadex analyst Connor Campbell said the oil giant posted a $18bn net loss in the second quarter but ‘was saved by an adjusted second quarter net income of $638m, a huge 82% decline year-on-year, but still lightyears away from the $664m loss forecast by analysts’. The shares were trading up 0.2% at 13p.
The US Federal Reserve’s latest meeting failed to provide any bright spots for investors, as it warned the US economy is stalling as coronavirus infections continue to rise. It kept interest rates on hold at between 0% and 0.25% and committed to keeping them low as the economy recovered.
While there has been increases in economic activity and employment, policymakers warned ‘the path of the economy will depend significantly on the course of the virus’.
Fed chair Jerome Powell said ‘it looks like the data are pointing to a slowing in the pace of the recovery’.
Seema Shah, chief strategist at Principal Global Investors, said the meeting contained ‘no surprises’. She said concerns about a second wave and the impact on the labour market and consumer spending will be ‘compounding if Congress cannot agree on a new fiscal stimulus package before summer recess’.
Ipek Ozkardeskaya, analyst at Swiss Quote, said the worse the economic conditions get in the US, the better it could potentially be for equities.
‘We are back to those days where bad economic news is perceived as good news for the market as deteriorating financial conditions mean more monetary and fiscal support, a longer period of cheap liquidity which can only result in a bigger balloon in equity prices,’ she said.