Investors started the week in nervous mood. Little wonder, when the advice proffered by one team of City brokers was to “sell everything”.
Concerns about China, the falling oil price and rising interest rates lay behind warnings of a “cataclysmic year”. Markets had already started 2016 on the back foot, with the FTSE 100 losing more than 5% in its first week of trading.
Looking down a barrel
While equity investors have had a bad start to the year, those trading energy commodities have suffered even more. The price of oil plunged to new lows, sinking to nearly $30 a barrel amid fears of dwindling Chinese demand and no apparent sign of a cut in supply. The Organisation of the Petroleum Exporting Countries has steadfastly maintained production at current levels, largely under the influence of Saudi Arabia. With the looming prospect of Iranian oil coming back on stream, should sanctions on the country be lifted, there are concerns prices could continue to plumb the depths.
The current weakness has already forced companies to slash costs and halt exploration. BP announced it was axing thousands of jobs in its exploration and production divisions, including 600 in the North Sea, while Brazil’s Petrobras said it was slashing investment by $32 billion over the next five years. A report by energy consultancy Wood Mackenzie revealed that companies have cut spending plans by nearly $400 billion since the oil price nosedived.
Trolleyed
Looking for chinks of light amid the gloom can sometimes require strong eyesight, but there are bright spots to be found. Later in the week, markets staged a rebound. The resurgence was led by supermarkets. Morrisons delivered Christmas sales figures ahead of expectations. The post-festive cheer spread to rivals, including Tesco and Sainsbury’s. But once again, Aldi and Lidl gave their rivals a Christmas stuffing, both trumpeting sales more than 20% higher than for the same period last year.
The rebound in sentiment helped the FTSE 100 index to a gain of 0.1% over the four days to the close on Thursday.
The bottom line
Whether investors’ optimism proves short-lived will probably depend on the upcoming US corporate earnings season. There are fears that the strong dollar will have hurt sales for US exporters, while the country’s mining and energy companies are suffering from the collapse in oil and commodities prices. Some analysts are forecasting the first annual decline in profits and sales since the financial crisis. The S&P 500 index has more than doubled since the days of the Lehman Brothers collapse. Investors may come to look back on the period from 2008 to 2015 as the market’s golden years.
And finally…
Trips to the cinema might never be the same again if misophonic movie buff Mike Shotton gets his way. After having a trip to see the latest Star Wars film “ruined” by other noisy viewers, he set up a petition to ban popcorn in all cinemas. Newcastle-based Mr Shotton points out that cinema chains are at pains to persuade viewers to be quiet, while selling them “the loudest food known to man”. His petition claims popcorn sold in cinemas is “loud, it smells, it tastes of nothing and shares a consistency with weakened polystyrene.” He hasn’t been able to rustle up an a-maize-ing amount of support. With only 106 signatures collected so far, he’s clearly going against the grain.
