FTSE falls on BP spill failures, Euro bank fears and China slowdown

The UK’s top index suffered large early losses following three days of consecutive growth last week as traders got their first chance to react to recent news for the first time in three days following the bank holiday weekend. The announced failure of BP’s (LON:BP) Top Kill operation to block the oil spill in the Gulf of Mexico has hammered the group’s shares and warnings of more impeding European bank write-offs and a reported slowdown in manufacturing in China have rekindled economic recovery fears.

Kate Neilson
shareprices.com - Tuesday, June 01, 2010

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BP shares plunged as it strives to stop the US oil leak

The FTSE 100 fell more than 100 points in the opening hour of the first session of the week, dropping as much as 2.1 per cent, floating the index just above the surface of the 5,000 point bracket.

The biggest contributor to this morning’s collapse is BP which is losing a hard-fought effort to plug the oil spill in the Gulf of Mexico that’s now officially the biggest oil spill in US history. BP’s efforts to control the spill by pumping mud and cement into the damaged well has failed to plug the leak and the group has turned back to a process of siphoning the leaking gas and oil to intervention vessels on the water surface while it works on a new cap system that won’t be available until mid-June. The latest news has seen the return of a mass BP sell off with the share price plummeting by 11 per cent when the market opened and has continued to drop throughout the morning to lows of 420p – a drop of over 70p and 15 per cent.

BP isn’t the only loser on the index this morning though. Both the mining sector and banks were plagued by recent headline news.

Miners were hit on two fronts with reports that manufacturing growth in China had slowed, pushing metal prices right down, and the Australian Prime Minister said he was refusing to budge on the 40 per cent super tax on resource profits.

As a result it’s mining groups that make up the majority of the FTSE 100 fallers this morning. Kazakhmys (LON:KAZ) is the biggest faller with shares over four per cent down just before 10:00BST. Lonmin (LON:LMI), Antofagasta (LON:ANTO) and BHP Bilton (LON:BLT) stock is all in the region of three per cent losses and Anglo American (LON:AAL), Rio Tinto (LON:RIO) and Vedanta Resources (LON:VED) are all over two per cent down.

Banks were also struggling this morning after an announcement by the European Central Bank last night suggested that Europe’s banks will have to set aside another €123bn (£103bn) to cover bad loans this year and another €105bn (£88bn) the following year. The €228bn set aside will be added to the €238bn (£200bn) that’s already been written off since 2007.

Banking shares were predicted to fall before the market reopened this morning and have failed to buck the forecast. Barclays (LON:BARC) is suffering the most in early trading with losses of 2.8 per cent at 10:00BST closely followed by RBS (LON:RBS) which is down two per cent. Standard Chartered (LON:STAN) and Lloyds Banking Group (LON:LLOY) are in the region of 1.5 per cent down with HSBC (LON:HSBA) 0.5 per cent lower.

At 10:00BST the FTSE 100 index is 2.05 per cent down with a loss of 106.42 points to 5082.23.

 

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