Market snapshot: FTSE 100 extends slump amid new oil crisis

The mood is darkening among investors as the possibility of an extended conflict increases.

The main US indices ended the week sharply lower again, as traders deescalated their risk positions ahead of the weekend. As it turns out, this proved to be a wise move, since further targeted attacks resulted in a surge in oil prices on Sunday by as much as 30%, and even though the price has since moderated, it remains comfortably above the perceived pain point of $100 per barrel and up by 75% in the year to date.

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With the Strait of Hormuz effectively closed for traffic, and with further cuts to production coming from Kuwait and Iraq, the supply shock is truly reverberating and, if left unchecked, will likely lead to a global economic slowdown. The possibility of stagflation – a toxic mix of slowing growth and rising inflation – or even recession are currently on the minds of increasingly concerned investors.

Adding to the confusion was a set of non-farm payroll figures which confounded expectations, with the expected addition of 50,000 jobs in February actually coming in at a loss of 92,000, and with the unemployment rate ticking higher from 4.3% to 4.4%, leaving the Federal Reserve between a rock and a hard place. With previous downward revisions signalling a weaker jobs market, the Fed would usually be on alert to reduce interest rates, but with the wider situation implying higher inflation they may find themselves hamstrung.

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US markets will have their first opportunity to react to the weekend’s developments when they open, and at this early stage another ugly start is on the cards, with losses of up to 2% across the indices currently suggested by Dow futures. This would add to what is becoming an increasingly challenging year so far, with losses of 1.2%, 1.5% and 3.7% for the Dow Jones, S&P500 and Nasdaq respectively.

Asian markets provided little succour overnight, as most succumbed to the negative momentum of sentiment. In addition, those countries perceived to have a particular reliance on imported energy were worst hit, with a loss of over 5% for Japan’s Nikkei 225 index typical of the losses across the region.

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The inevitable strength from oil majors BP (LSE:BP.) and Shell (LSE:SHEL) did nothing to rescue the FTSE100 from another bruising open, with all but a handful of stocks in the red by as much as 6% as investors headed for the exit.

Indeed, given the indiscriminate markdowns across most sectors, there is a growing suspicion that the wall of US money which had been helping to drive the FTSE100 higher is now being repatriated, very possibly to the dollar. 

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Little more than a week ago, the premier index closed at a record high with the 11,000 level moving into touching distance. However, the relentless falls over the last few sessions have dragged the level nearer to 10,000 and, while the FTSE100 remains ahead by 1.7% so far this year, there is no immediate or obvious catalyst in view to arrest the declines. 

In addition, the FTSE250 has now erased all gains in the year to date to stand 2.2% lower, unable to withstand the additional pressure of a weakening domestic economy.