Carnival Steers FTSE 100 Lower

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Wednesday, April 1: markets in London started the day and the new quarter on the back foot, nullifying yesterday’s gains. Insurers, asset managers and commodity producers all pushed the FTSE 100 index(-3.83%) lower led by cruise operator Carnival, as the FTSE 250(-3.67%)  found itself depressed by a range of retail, leisure, materials and housebuilding stocks. European equities(STOX X 50: -2.43% ) were also lower to a similar degree, and US equities  found themselves a leg lower upon opening.

Carnival slumped 20.62%, as did NYSE-listed Royal Caribbean at the open as the coronavirus pandemic caused cruise operators to suspend sailings, prompting credit agency Moody’s to downgrade the creditworthiness of the operators.  Carnival was downgraded 2 notches to Baa3, whilst the latter dropped a notch to Baa3. Moody’s cited that leverage for both travel companies will be about 4.5x at the end of 2021 but assumes that booking will eventually pick up in 2021, albeit at a lower level than seen in 2019. This week Carnival announced it is looking to raise at least $6bn in stock & debt, whilst Royal Caribbean recently said it will borrow $2.2bn from its credit facility.

Further downwards pressure came from the financial sector, despite the widely held belief that banks are sufficiently capitalised such that they would not need to cancel distributions to shareholders in the midst of a crisis. The Bank of England’s Prudential Regulation Authority requested that banks suspend distributions to shareholders until the end of 2020, and cancel any outstanding payments. Standard Chartered PLC, NatWest, Santander, the Royal Bank of Scotland Group PLC, Nationwide, Lloyds Banking PLC, HSBC Holdings PLC and Barclays PLC have all agreed to cancel dividends, with cash bonuses to top staff also barred under the PRA request. Speculation also mounts that insurers will be advised not to pay dividends, hence the fall in share prices of L&G and Aviva of around 10% intraday.

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