LONDON (Alliance News) - Share prices in London closed lower Monday, as oil prices were put under further pressure by Iran's re-emergence as a major oil exporter after the West lifted economic sanctions over the weekend.
With US markets closed for Martin Luther King's Birthday and little in the way of economic data, oil was once more the focus of attention as crude benchmarks hit their lowest levels since the end of 2003.
"As has become the custom recently, it was the volatile price of oil that set the tone for equity trading," commented Jasper Lawler of CMC Markets. "A bounce off the lows set in Asian trading for crude oil helped an encouraging start for European equities but as oil prices slid back, equities fell into the red."
The FTSE 100 index had opened higher Monday, but closed down 0.4% at 5,779.92 points. The FTSE 250 closed down 1.3% at 15,958.81 and the AIM All-Share down 1.5% at 688.12. In Paris, the CAC 40 index closed down 0.5% and in Frankfurt the DAX 30 ended down 0.3%.
"Markets are now in do-or-die territory," Lawler said. "We're now sitting just above the August lows, a line in the sand for many investors. Just another 2% to 3% drop from here could trigger enough position covering and protective options orders that move markets from correction to bear market."
Brent oil set its lowest price since November 2003 at USD27.69 a barrel before the equity market open, after the West dropped its economic sanctions against Iran, allowing the country to export oil freely and settling the dispute over the regional power's nuclear programme. The anticipation of yet more supply to the world crude market put pressure on prices.
Oil prices did stage something of a rally as the trading day went on, with Brent quoted at USD28.60 a barrel at the London equities close, though still down from USD29.39 at the London close on Friday. Similarly, US benchmark West Texas Intermediate was at USD28.96 a barrel late Monday, up from an earlier low of USD28.35.
London-listed oil companies saw little benefit from the oil rebound. BP and Royal Dutch Shell 'A' shares both closed up 0.7%, but BG Group ended down 0.4%. Shell and BG are set to provide fourth-quarter trading updates on Wednesday, ahead of shareholder votes on their proposed merger next week.
At the London equities close, the pound was quoted at USD1.4270, down from USD1.4292 at the same point on Friday, while the euro traded the dollar at USD1.0884, down from USD1.0946 on Friday. The gold price stood at USD1,089.40, slightly up from USD1,088.24 late Friday.
With big themes lacking, stocks were moving on company announcements and broker rating changes.
The biggest news was from FTSE 250 constituent, Home Retail Group, which confirmed it agreed to sell its Homebase DIY and garden centre chain to Australian conglomerate Wesfarmers, and will return most of the proceeds of the sale to shareholders.
Home Retail will sell the business for GBP340.0 million, having disclosed it was holding advanced talks with the buyer last week. Wesfarmers owns Australian DIY chain Bunnings and intends to rebrand Homebase stores under that name, with an investment of GBP500.0 million to be made in the business over the next three to five years.
Wesfarmers said it expects the deal to complete in the first quarter of 2016 in an earlier statement. Home Retail confirmed that calendar on Monday morning and said it would return about GBP200.0 million of the proceeds to shareholders, after deducting GBP50 million in pension contributions and GBP75 million in deal and restructuring costs.
Home Retail shares closed down 0.3%. Cantor Fitzgerald said the price achieved by Home Retail was "significantly higher" than consensus estimates. More importantly, Cantor said the Homebase disposal put Home Retail with its remaining Argos catalogue retail business "in play".
FTSE 100 supermarket J Sainsbury, which made a rejected approach to Home Retail in November with its sights on Argos, has until February 2 to make a formal offer or walk away. Sainsbury shares closes down 1.8% Monday.
Also among mid-caps, Amec Foster Wheeler added 3.1%, the second biggest gainer in the FTSE 250. The engineering services group said Chief Executive Samir Brikho stepped down and has been replaced by its finance chief. Ian McHoul will become interim chief executive with immediate effect and hold the position until a permanent replacement for Brikho is appointed.
Amec said it will consider internal and external candidates for the role, but said McHoul has decided not to apply. Amec briefly added that its trading results for 2015 were in line with its expectations.
Shire was a top-performer in the FTSE 100, up 1.8% after Exane BNP upgraded the stock to Outperform from Neutral. The investment company said while Baxalta wasn't the best acquisition option for Shire, the deal is value-enhancing. A week ago, Shire struck a USD32.0 billion cash-and-shares deal to acquire US-based Baxalta in a push to create a leading player in the rare diseases segment of the drug market.
Empyrean Energy shares soared 45% to the top of AIM after the oil and gas company struck a deal to sell all of its interest in the Sugarloaf AMI project in the US for up to USD71.5 million, potentially leading to some of the proceeds being returned to shareholders.
The company has entered into a conditional purchase and sale agreement with Carrier Energy Partners II, which will pay an initial USD 61.5 million under the deal, paying the other USD10.0 million based on WTI prices in the future.
Fellow AIM-listed oil and gas company Petroceltic International was the worst performer in the AIM All-Share index, down 25%. The oil and gas company said it has secured an extension to its waiver of payments on its senior bank facility to January 29. Petroceltic added its lenders have indicated they are willing to consider other waivers in the future.
Unilever leads the UK corporate calendar on Tuesday with the first set of 2015 full-year results. The stock closed up 0.5% Monday.
The Anglo-Dutch maker of Pot Noodle and Marmite is expected to post a fall in pretax profit when it reports its full-year results on Tuesday, as it continues to be hit by unfavourable foreign exchange rate movements, although underlying sales growth is expected to be at the higher end of the food, home and personal care product supplier's previous guidance.
Also Tuesday, British Land provides a trading statement, online trading firm IG Group its half-year results, and steel maker and miner Evraz its 2015 production.
China leads a full day of economic data reports Tuesday, with gross domestic product, retail sales and industrial production reports at 0200 GMT. German consumer inflation is due at 0700 GMT, followed by UK consumer, retail and producer price indices at 0930 GMT. The EU consumer price index follows at 1000 GMT.
Bank of England Governor Mark Carney speaks at Queen Mary University in London at 1200 GMT.
By Tom Waite; thomaslwaite@alliancenews.com; @thomaslwaite
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22 Jan 2016 17:00
