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Markets slide as UK banks cancel dividends and factories slump

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10.07am BST10:07 Sam Tombs of Pantheon Economics wins today’s Spotters Prize: Samuel Tombs (@samueltombs) Responses to Markit’s manufacturing survey received after March 20, when schools were shut and the lockdown began, were unsurprisingly much weaker than those between March 12 and 20 (the dates for the flash reading), and point to a huge 7% slump…

Sam Tombs of Pantheon Economics wins today’s Spotters Prize:

Samuel Tombs
(@samueltombs)

Responses to Markit’s manufacturing survey received after March 20, when schools were shut and the lockdown began, were unsurprisingly much weaker than those between March 12 and 20 (the dates for the flash reading), and point to a huge 7% slump in manufacturing output: pic.twitter.com/j3yjTDYVF6

April 1, 2020

March was grim for UK factories (and their counterparts around the world), but April will surely be worse.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, explains:


“With supply chains crumbling around the world, we can only expect a worsening outlook next month as increasingly necessary lockdown measures squeeze manufacturing production.

Only creative and agile thinking, new products and approaches will see the sector through the turbulence ahead.”

UK factories cut jobs at fastest rate since 2009

More bad news. UK factories are cutting jobs at the fastest rate since the great recession more than a decade ago.

Manufacturers have reported that production contracted sharply last month.

Output and new orders both fell at the fastest rate since July 2012. Factories also suffered transport delays and shortages of raw materials, due to global efforts to combat Covid-19.

Data firm Markit, which compiled the report, says bosses are their most pessimistic since their survey began 28 years ago.


The downturns in output and new orders were widespread, with contractions seen across the consumer, intermediate and investment goods sub-industries.

Manufacturers reported that disruption resulting from the COVID-19 outbreak, lower market confidence and company shutdowns had all contributed to the drops in production and new business. Business sentiment was also affected, falling to a series-record low.

With demand slumping at home, and abroad, many customers cancelled orders. And this has led to sharp job losses.

Markit says:


Employment fell for the eleventh time in the past 12 months in March, and at the fastest rate since July 2009. Where job losses were reported, these were linked to lower levels of production and new orders, in many cases due to the outbreak of COVID-19. Redundancies, workforce restructuring, natural wastage and only replacing essential positions all contributed to lower staff headcount.

This dragged Markit’s UK manufacturing PMI down to a three-month low of 47.8 (showing a contraction).

UK factory PMI

UK factory PMI Photograph: IHS Markit

Confusingly, the real picture is probably worse, as supplier delays and supply shortages boost the PMI (they normally indicate strong economic demand).

Updated

UK banks may have acted together last night, but they did so under duress.

City regulators effectively forced the banks to scrap dividends, to strengthen their finances.

As The Times puts it:


The co-ordinated action came after the Prudential Regulation Authority gave banks an 8pm deadline to agree to cancel dividend payments and share buybacks and to make a statement by 9pm. If they did not do so, the PRA warned that it could use its supervisory powers to force banks to comply.

Eurozone factories slash jobs as manufacturing output slumps

Newsflash: European factories had a torrid time in March, particularly in Italy, Greece and France.

Manufacturers have reported that output and new orders slumped last month, due to the impact of Covid-19 shutdowns, forcing a surge in job cuts.

This dragged the Eurozone manufacturing PMI (a survey of purchasing managers) down to just 44.5, from 49.2 in February.

Eurozone manufacturing PMI, March 2020

Photograph: IHS Markit

That’s shows a very sharp contraction (50=stagnation), and is the lowest reading since 2012. It’s also worse than last week’s ‘flash’ reading, showing that conditions worsened during last month.

Manufacturing output, new orders and exports all fell at the fastest rate since the spring of 2009 (when the global economy was in recession).

Markit adds that this forced many bosses to lay staff off:


Manufacturers also cut their employment levels over the month, with the net reduction in staffing numbers the sharpest recorded by the survey in over a decade. Job losses were especially acute in Austria, Germany and Ireland.

Eurozone manufacturing PMI

Photograph: Markit

UK banks aren’t the only companies taking drastic action to cope with Covid-19.

Housebuilder Taylor Wimpey has announced that its directors have cancelled their bonus scheme for 2020, and are taking a 30% pay cut for the duration of the coronavirus lockdown.

Car selling service Autotrader is taking even more drastic action. Its board are taking a pay cut of at least 50%, and putting many of their staff on furlough (so the government will pick up 80% of their wages).

Autotrader is also issuing new shares, to bolster its capital reserves, and reckons its unlikely to pay a dividend for 2020.

Fairly intensive selling has now driven the FTSE 100 down by over 4%, down 235 points at 5434.

The banks are doing plenty of damage, along with other financial stocks such as Legal & General (-10%), Standard Life Aberdeen (-8.5%) , Aviva (-8.4%) and Prudential (-8.1%).

Broadcaster ITV are also struggling, down 8%, with luxury chain Burberry down 7.6%.

In fact, every single share on the Footsie is down, as markets start the new quarter on the back foot (or possibly on their knees!)

The FTSE 100 by sector, April 01 2020

The FTSE 100 by sector this morning Photograph: Refinitiv

John Cronin of Irish investment bank Goodbody says that the UK banks have gone further than expected.

He told clients this morning:


It was heavier-handed than we thought on two fronts: i) we expected that both proposed dividends – and dividends for the next six months – would be suspended, not cancelled; and ii) we were surprised that the variable remuneration restrictions are wider in their application, i.e., they stretch beyond just the executive layer.

On the latter, hopefully, it will be a postponement rather than a cancellation for 2020 to the extent that banks show they can get through the worst of this crisis with their capital positions intact – which we believe they will.

Anyone whose held bank shares for the last decade or so may wonder why they bothered.

Owning HSBC stock has been a volatile ride — but not one that has returned to the good old days before the financial crisis:

HSBC’s share price

HSBC’s share price Photograph: Refinitiv

Lloyds, meanwhile, has been grim – ever since the disastrous merger with HBOS (subsequently described as a ‘mugging’ in the high court)

Lloyds share price

Lloyds share price Photograph: Refinitiv

Of course, there have been dividend payments to cushion the blow…. but not any more.

Updated

Richard Hunter, Head of Markets at interactive investor, says the UK banks may be doing the right thing for the economy….but at the expense of their shareholders:


“The announcement that banks will be suspending existing and future dividends and share buybacks ticks the boxes of moral duty and an additional capacity to lend, but from an investment perspective it removes a core plank of the case for buying bank shares.

The current yield of the UK banks, soon to evaporate, is testament to the fact that some are core portfolio holdings. Lloyds Banking has a dividend yield at present of 10.5%, Barclays 9.6%, Royal Bank of Scotland 4.4%, HSBC 9% and Standard Chartered 4.9%.

From a technical perspective, it also begs the question of how or whether these share prices will be compensated for the previous ex-dividend markdowns. On ex-dividend day, share prices are reduced by the amount of the upcoming dividend, which already applies to Barclays and HSBC (both 27th February), Standard Chartered (5th March) and Royal Bank of Scotland (26th March). It is unclear whether this can be reversed.

Bank shares slide

Oof! Shares in Britain’s banks have fallen heavily at the start of trading, after they collectively cancelled last year’s dividends and vowed not to pay any for this year.

HSBC have tumbled by 8%, closely followed by Lloyds (-5.8%), Standard Chartered (-5.8%), Barclays (-5.6%), and Royal Bank of Scotland (-3.5%).

This has dragged the FTSE 100 index of blue-chip shares down to 5487 points, down 187 points or 3.3%. That more than wipes out yesterday’s 100 point leap.

The top fallers on the FTSE 100, morning April 01 2020

The top fallers on the FTSE 100, morning April 01 2020 Photograph: Refinitiv

Updated

European stock markets have fallen at the start of trading, with Germany’s DAX sliding by 3.2%, Spain’s IBEX down 2.2% and Italy’s FTSE MIB down 2.2%.

Britain’s FTSE 100 has dropped by 2.5%…but it’s a rocky open, as the bank shares haven’t actually traded yet (a bad sign…).

Tin hats to the ready…..

Michael Hewson 🇬🇧
(@mhewson_CMC)

Keep an eye on UK Banks this morning after last nights announcement of dividend cuts.

HSBC down over 9% in HK

Standard Chartered down over 6%

April 1, 2020

UK banks freeze dividends as coronavirus hit approaches

Britain’s biggest banks are all cancelling their dividends, due to the economic shock of Covid-19.

It’s a blow to millions of small shareholders and pension holders, although it will make the banks stronger to handle the looming threat of loan defaults as the UK lurches into recession.

It will also rattle the City of London, and help drive markets down today.

Late last night HSBC, Royal Bank of Scotland, Standard Chartered, Barclays and Lloyds Banking Group axed their outstanding 2019 dividends, to protect their cash reserves.

They have all agreed not to make dividend payments in 2020, and to suspend share buybacks, in a flurry of co-ordinated announcements.

My colleague Kalyeena Makortoff explains the impact:


The cancellation of the 2019 dividends will give the banks an additional financial cushion worth nearly £8bn in total, as they are pushed to increase lending to businesses and households during the Covid-19 lockdown.

The decisions will be felt most immediately by Barclays shareholders who were set to receive more than £1bn on Friday. Barclays said the decision to scrap the 2019 payout was “in response to a request from the UK Prudential Regulation Authority and to preserve additional capital for use in serving Barclays’ customers and clients”.

Here’s the full story:

Introduction: New quarter begins with same old selling

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Good news! The worst quarter for the London stock market since 1987 is over.

Bad News! The new quarter is getting off to a bad start too.

Stocks have fallen across Asia today, and European markets are expected to follow, as investors grow more anxious about the Covid-19 crisis.

The FTSE 100, which slumped by almost 25% in the first quarter of this year, is on track to drop by over 3% this morning, as the global economy continues to deteriorate fast.

IGSquawk
(@IGSquawk)

European Opening Calls:#FTSE 5476 -3.45%#DAX 9620 -3.18%#CAC 4264 -3.01%#AEX 467 -3.32%#MIB 16603 -2.63%#IBEX 6597 -2.78%#OMX 1440 -2.89%#STOXX 2700 -3.11%#IGOpeningCall

April 1, 2020

Anxiety about the extent of the global recession is mounting.

With the global death toll passing 42,000, and nearly 860,000 infections recorded, hopes that the global economy could bounce back from the economic shock look optimistic.

Last night, US president Donald Trump predicted that America faces two “very, very painful two weeks”, with experts warning that up to 240,000 lives could be lost, even if current social distancing guidelines are maintained.

This warning knocked Wall Street futures into the red, pushing Japan’s Nikkei down 4.5% and nudging China’s CSI300 index into the red.

Also coming up today

Data firm Markit’s latest UK, eurozone and US purchasing manager surveys will show how badly factories have suffered from the Covid-19 shutdown in March.

The ‘flash’ PMI readings released last week were grim — with heavy slumps in output as manufacturers shut down. Today’s final readings should have more detail, including for Spanish and Italian factories.

Jim Reid of Deutsche Bank explains:


The final numbers don’t often change much from the flash but given the severity of the lockdowns in the second half of the month this will be one to watch.

We’ll also get a first look at Italy and Spain which given their more savage impact from the virus, these will be a big focus.

The agenda

  • 9am BST: Eurozone manufacturing PMI for March
  • 9.30am BST: UK manufacturing PMI for March
  • 3pm BST: US manufacturing PMI for March
  • 3.30pm BST: US weekly oil inventories

Updated

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