London close: Footsie underperforms as commodities drag
London's blue chip stocks trooped down to a two-week low on Tuesday, with Brexit, weaker commodity prices and the upcoming Fed announcement weighing on the mood.
The FTSE 100 finished down almost 72 points or 1.1% lower to 6,701.59, capitulating late in the session having earlier resisted falling pray to the heavy losses seen in the US a day earlier, when the S&P closed at a 14-month low amid worries about economic growth. US stocks were on the up in early trading on Tuesday.
Stocks in Asia also slumped as investors were left disappointed after Chinese President Xi Jinping failed to mention any new reforms or stimulus in his speech commemorating the 40th anniversary of China's economic reforms.
While European peers and the UK mid-caps of the FTSE 250 managed to turn things around as Tuesday went on, the FTSE remained in the red due to its heavier weighting to commodities.
Falls in copper, palladium and platinum have hurt several big names. Crude prices were also down again, with a barrel of Brent dropping 4% to around 14 month lows around $57 as it was reported that Russia is increasing output to 11.42m barrels per day this month, which would be a record for the country, if it turns out to be true.
"Major oil producers can talk about coordinated production cuts all they want, but at the end of the day they usually pursue their own interests," said David Madden at CMC Markets.
Shell and BP were in the red, acting as major weights on the index, while the mining sector was mixed. the China news kept HSBC flat.
In currency markets, the pound was up 0.2% against the dollar at 1.2643, with the greenback felt to be under pressure ahead of the meeting of the Fed's rate setters.
Said Rabobank's analysts: "It is widely expected that rates are being raised to between 2.25%-2.50%, but the market will be focused on what the FOMC says about its expectations going forward and whether this contains a signal that it is prepared to turn off the autopilot."
Against the euro, sterling was flat at 1.1124 as Cabinet agreed to implement planning for a no-deal Brexit on a case by case basis, including allocating cash from a contingency fund. There were further complaints in Westminster from MPs after being told they will not be able to vote on Theresa May's proposals until mid-January.
On the corporate front, National Grid was the standout loser on the FTSE 100 as it said it was "disappointed" with Ofgem's proposed financial reforms to the energy that could save consumer £45 a year thanks to imposing price controls on National Grid. SSE and Severn Trent were also in the red.
Russ Mould, investment director at AJ Bell, said National Grid, loved by many investors for its dividends, is particularly affected by the announcement.
"National Grid is not happy, saying the proposed finance package doesn’t reflect the level of risk borne by transmission networks," he said, adding that dividends would be expected to potentially be less generous beyond 2021 should Ofgem’s proposals be finalised without any amendments.
"It shows that even the most defensive companies are still at risk from regulatory changes."
Shire was in doldrums following heavy falls for Takeda overnight, after Moody's cut its credit rating on the pharmaceutical company by three notches to Baa2 from A2.
Outside of oil prices, Shell was in the headlines following a report that the oil giant is in talks to buy Endeavor Energy Resources for about $8bn. Bloomberg cited a person familiar with the matter as saying that discussions have not reached an advanced stage, with matters complicated by founder Autry Stephens' desire to retain a large quantity of its mineral rights.
Wood Group was in the red due to crude prices, overshadowing news that it had has won a 10-year contract worth $66m to supply programmable digital control technologies to the Sellafield nuclear site in Cumbria, UK.
On the upside, housebuilders were recovering from losses in the previous session, with Barratt Developments, Taylor Wimpey and Persimmon among the risers. The sector had been under pressure a day earlier after the latest Rightmove survey showed that house prices suffered their biggest two-month drop in December since 2012.
Retailers were also bouncing back from heavy falls following a shock profit warning from online giant Asos on Monday, with Next, B&Q owner Kingfisher, Marks & Spencer and Dunelm all trading higher, but Dixons Carphone heading in the red.
Oil services engineer Petrofac bucked the trend after saying it was trading in line with expectations for the calendar year, with new order intake rising to $5.0bn so far in 2018 from $3.3bn at the half-year stage.
In broker note action, Asos was cut to 'hold' from 'sell' at Liberum and to 'sell' from 'hold' at Stifel following its shock profit warning on Monday, but upgraded by Credit Suisse, which also downgraded Intu Properties to 'underperform'.
Cineworld was lifted to 'top pick' from 'outperform' by RBC Capital Markets.
British American Tobacco and Cairn Energy were started at 'overweight' by Barclays, along with Premier Oil and Tullow, while Faroe Petroleum was initiated at 'equalweight'.
Elsewhere, IG Group, Euromoney and CMC Markets were started at 'buy' by Peel Hunt, while Plus500 was initiated at 'hold'.
Market Movers
FTSE 100 (UKX) 6,701.59 -1.06%
FTSE 250 (MCX) 17,495.04 0.45%
techMARK (TASX) 3,300.72 -0.54%
FTSE 100 - Risers
Randgold Resources Ltd. (RRS) 6,890.00p 3.18%
Standard Life Aberdeen (SLA) 247.00p 2.55%
easyJet (EZJ) 1,079.00p 2.52%
Johnson Matthey (JMAT) 2,755.00p 2.34%
Tesco (TSCO) 194.65p 2.08%
Kingfisher (KGF) 220.40p 2.04%
International Consolidated Airlines Group SA (CDI) (IAG) 610.00p 1.91%
Next (NXT) 4,210.00p 1.76%
Smiths Group (SMIN) 1,408.00p 1.73%
Intertek Group (ITRK) 4,685.00p 1.69%
FTSE 100 - Fallers
National Grid (NG.) 758.70p -9.17%
NMC Health (NMC) 2,818.00p -3.64%
Shire Plc (SHP) 4,371.00p -3.56%
Antofagasta (ANTO) 772.60p -3.27%
Wood Group (John) (WG.) 517.00p -3.18%
Severn Trent (SVT) 1,827.00p -2.51%
Royal Dutch Shell 'B' (RDSB) 2,281.50p -2.46%
BT Group (BT.A) 244.00p -2.42%
Royal Dutch Shell 'A' (RDSA) 2,270.00p -2.39%
BP (BP.) 497.30p -2.22%
FTSE 250 - Risers
Indivior (INDV) 112.35p 17.68%
Contour Global (GLO) 179.90p 8.50%
Thomas Cook Group (TCG) 29.24p 7.34%
IP Group (IPO) 109.60p 7.03%
Vivo Energy (VVO) 122.30p 6.61%
Spire Healthcare Group (SPI) 105.90p 6.49%
Inchcape (INCH) 551.00p 6.06%
IG Group Holdings (IGG) 571.50p 5.93%
AA (AA.) 81.54p 5.73%
Ultra Electronics Holdings (ULE) 1,369.00p 4.74%
FTSE 250 - Fallers
Premier Oil (PMO) 61.22p -5.62%
Cineworld Group (CINE) 258.20p -3.94%
Provident Financial (PFG) 578.60p -3.76%
Kaz Minerals (KAZ) 508.20p -3.75%
Stagecoach Group (SGC) 137.30p -3.65%
Tullow Oil (TLW) 169.50p -3.15%
TI Fluid Systems (TIFS) 162.90p -3.03%
Pennon Group (PNN) 689.80p -2.76%
Daejan Holdings (DJAN) 5,640.00p -2.76%
Softcat (SCT) 565.00p -2.59%