FTSE 100 day of reckoning as Shell yanks dividend and Lloyds earnings miss

  • The FTSE 100 index declined by 0.60% as the market reacted to weak earnings from Lloyds Banking Group.
  • The index also fell because Shell became the first oil supermajor to slash its dividend.
  • The FTSE 100 trend is bullish as the price nears the 50-day EMA.

The FTSE 100 declined today as the market reflected on the disappointing Q1 earnings by Lloyds Bank and the decision by Royal Dutch Shell to slash dividends.

Lloyds share price slides after weak quarter

Lloyds was one of the biggest movers in the FTSE 100 index after the bank released a weak quarter. The company’s net income dove by about 95% as it allocated more than £1.4 billion to provisions for bad loans. As a result, the profit came in at just £74 million, which is the lowest it has been for years. In a statement, the bank’s CEO, Antonio Horta said that the current pandemic had made it difficult for business to do business.

The challenges for the bank comes from its size. As the biggest housing and business lender in the UK, it is always affected when there are serious economic issues in the economy. Lloyds share price declined by more than 3% after the news.

FTSE 100 falls as Royal Dutch Shell cut its dividends

Another big mover in the FTSE 100 was Royal Dutch Shell, one of the biggest companies in the world. The company made headlines when it slashed its dividend for the first time in decades. The decision came as the company’s net income declined by almost half to $2.9 billion, which was slightly better than the estimated $2.3 billion. In the announcement, RDS said that it will cut dividend to 16 cents from the previous 47 cents.

The decision means that other oil “supermajors” like Total, Eni, BP, and ExxonMobil could also be forced to slash their dividends in the near term.

The price of crude oil has been in a freefall in the past few months because of lack of demand and increased supplies. This fact led to the price of US crude oil to move to the negative level almost two weeks ago. As a result, oil companies have been struggling. As I reported earlier today, Chesapeake Energy has started the bankruptcy process. This comes after Diamondback, another big US shale producer filed for bankruptcy. Analysts expect more of these companies to go out of business.

By slashing its dividend, the FTSE 100 company, also said that it would slash its capital investments with the goal of preserving cash.

Royal Dutch Shell is not the only company to slash its dividend. In the United Kingdom, banks like Lloyds and Barclays have been barred by regulators to halt their dividends. In a report released earlier this month, the Financial Times said that more than 40% of companies in the UK had slashed their dividend. In the report, the paper said:

“It would be ground zero for UK dividends if Shell or BP pulled their dividend because they’re two of the top five payers in the UK market, and over a third of the dividend market is from the top five.”

Shell’s stock price declined by more than 6%.

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FTSE 100 technical outlook

On the daily chart, we see that the FTSE 100 index is facing some resistance as bulls attempt to test the 50% Fibonacci retracement level. Still, the trend of the index is still bullish and is being guided by the pink trendline shown below.

Therefore, I expect it to continue to rise now that it has moved above the 50-day exponential moving averages. If it does this, the next level to watch on the FTSE 100 index is 6,232, which is along the 50% retracement level.

On the flipside, any moves below the 5,885 would invalidate this trend. This support is along the 38.2 Fib and is slightly close to the 38.2% Fib level.

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