FTSE lower as supermarket merger gets blocked

Although most European indices are trading lower this morning, the FTSE was hit especially hard by a sharp drop in Sainsbury’s and Taylor Wimpey shares. Lower production from oil and mining companies also created a drag for the London index.

Sainsbury’s attempt to merge with Asda has been scotched by the regulators, arguing that the merger would be bad for the consumer and lead to higher prices in shops, online trade and at petrol stations owned by the two companies. The supermarket chain’s share price dropped over 6% this morning but the decline didn’t stop there and instead pulled in Morrison, Tesco and Ocado as the competition watchdog sent a clear signal that further mergers in the relatively narrow UK food retail market will not become a potential way out from the current difficulties facing the UK retail sector. 

Quarterly earnings failed to bring a good outcome for the banking sector and instead Barclays' results triggered a slide across the sector. Although the bank managed to turn last year’s losses into a net profit, Barclays' pretax profit came in somewhat below expectations because of trading weakness at the investment part of the banking group.

Pound slides against the dollar

Sterling is weaker against the dollar as the potential resolution to the Brexit deadlock seems to be heading towards the removal of the Prime Minister. Although according to its own rules the Conservative party can’t vote to oust Mrs May for another nine months, Tory hardliners were disappointed that Brexit did not materialize in March and are asking for a clear timeline for the PM’s departure.

The pound is holding steady against the euro but only because of a broad-based weakness in the common currency. However, the political wrangling and the lack of any clarity about Brexit will continue to erode the pound at a slow and steady pace.

Oil up 1%

Speculation in the oil market is building again over the potential effect of Iranian sanctions, causing prices to bounce up nearly 1% overnight. The frantic buying activity was prompted by the US decision earlier this week to not renew waivers on Iranian oil exports when they expire in May, but instead tighten sanctions on exports from the oil rich country. If this goes ahead China, India, Turkey, Japan and South Korea, the countries currently holding the waivers, will be forced to buy more oil from other sources in a market that is already relatively tight because of Venezuela sanctions, OPEC production cuts and disruption of supplies from Libya.