BP Share News (BP.)

LONDON (Alliance News) - UK stocks closed slightly higher Tuesday, adding to the incremental gains posted on Monday, with oil and gas majors Royal Dutch Shell and BG Group among the leading risers in the blue-chip index.

The FTSE 100 closed up 0.3% at 6,383.61, while the FTSE 250 added 0.1% at 17,188.95, and the AIM All-Share index rose 0.6% at 744.41.

"The relentless sideways price action that characterised September appears to be back with us," said Chris Beauchamp, senior market analyst at IG. "Neither buyers nor sellers have been able to establish a clear trend so far this week, and with non-farm payrolls getting ever closer that is unlikely to change," he said. The US jobs data is due on Friday.

BG Group and Shell were two of the stand-out performers Tuesday in the FTSE 100, with the former closing up 1.9% and the latter's A shares up 2.4%.

Shell upgraded its outlook on cost synergies to be achieved from the proposed takeover of BG Group, and said it has delivered a competitive underlying performance within the low oil price environment. Shell said it has upgraded its annual cost synergy target for the BG takeover to USD3.5 billion, a USD1.0 billion, or 40%, increase on its previous target of USD2.5 billion. It said the transaction remains on track to close in early 2016.

In addition to this, oil stocks also benefited from a rise in both Brent and West Texas Intermediate oil prices. BP rose 3.9%, while mid-caps Tullow Oil and Premier Oil were up 18% and 14%, respectively. The FTSE 350 oil and gas producers sector index as a whole ended the day up 3.3%.

"Both oil contracts have defied the dollar’s strength and are rising despite the growing pessimism about demand," said Fawad Razaqzada, technical analyst at FOREX.com. "Oil speculators must therefore be feeling that the current level of pessimism is unjustified and are thus reducing their bearish bets," he added.

In addition to this, the imminent full return of US refineries after their seasonal maintenance works "should see a pickup in demand for crude products, such as distillates, and lead to a drop in inventories," the technical analyst said.

Craig Erlam, senior market analyst at OANDA, remained cautious, however. "I think what we’re seeing today is a technical rally rather than anything built on stronger fundamentals," Erlam said. "These remain bearish for oil prices and for that reason I don’t expect to see these rallies gain too much traction," he added.

The senior market analyst said that West Texas Intermediate oil is finding resistance around USD47 and that there is likely to be plenty more at around USD47.50, while USD50 could offer significant "upside resistance" for Brent.

At the UK equities close, Brent oil was quoted at USD49.75 a barrel, up from USD48.78 at the same point on Monday, while WTI stood at USD47.20 a barrel.

In UK economic data, Markit Economics and the Chartered Institute of Procurement & Supply revealed Tuesday that UK construction continued its solid pace of expansion in October. Even though the Markit/CIPS UK Construction Purchasing Managers' Index fell to 58.8 in October from 59.9 in September, matching economists' expectations, it remained well above the critical level of 50, the pivot between expansion and contraction.

"Another relatively buoyant construction PMI reading indicates that the sector remains in rude health," said Markit Senior Economist Tim Moore. "Rather than acting as a drag on the economy, as suggested by recent [gross domestic product] estimates, the sector is continuing to act as an important driving force behind the ongoing UK economic upturn," he added.

In the third quarter, construction output tumbled 2.2%, marking its first decline since early 2013 and the biggest fall in three years. GDP growth eased to 0.5% from 0.7% in the previous quarter.

"Given the role that construction played in the recent demise of the Q3 UK GDP figure, it is no surprise that markets were very keen to understand where the sector stood in November," said Joshua Mahony, market analyst at IG.

In Europe, having outperformed their UK counterparts on Monday, the CAC 40 in Paris closed up 0.4% Tuesday, while the DAX 30 in Frankfurt closed flat.

Stocks on Wall Street traded slightly higher, having closed significantly higher on Monday. The NASDAQ Composite was up 0.3%, the Dow 30 up 0.5% and the S&P 500 up 0.2% at the London close. On Monday, the three indices had ended the day between 0.9% and 1.5% higher.

"It would appear that this renewed confidence in the US maybe derived from the belief that weaker economic data would probably keep the [US Federal Reserve] on hold, while an improvement in economic data would suggest that the US economy is able to absorb the effects of a modest rise in rates next month, as US stocks push back towards their highs in an almost Goldilocks scenario for investors," said Michael Hewson, chief market analyst at CMC Markets UK.

In data released in the US Tuesday, the Commerce Department revealed that factory orders saw further downside in the month of September. It said factory orders fell by 1.0% in September after tumbling by a revised 2.1% in August.

Economists had expected orders to drop by 0.9% compared to the 1.7% decrease originally reported for the previous month.

In the forex market, following the data releases and at the London equities closing bell, the pound traded at USD1.5397 and the euro traded at USD1.0952. Gold, meanwhile, traded at USD1,123.00 per ounce.

At the UK individual company level away from oil stocks, housebuilders Taylor Wimpey, Barratt Developments and Persimmon were among the leading fallers in the blue-chip index, closing down 5.3%, 3.9% and 2.4%, respectively.

Liberum cut its ratings on the housebuilders to Sell from Hold on the belief valuations on the companies are currently too optimistic to withstand the gross margin pressure which will emerge in coming years as house price inflation is suppressed by greater regulation and as build-cost inflation returns.

Liberum kept its Hold stance on Berkeley Group Holdings, but that was not enough to stop the housebuilder following its sector peers, closing down 3.3%, making it one of the heaviest fallers.

Standard Chartered, closing down 6.1% at 670.24 pence, ended the day as the biggest loser in the FTSE 100.

The emerging markets-focused bank revealed an extensive set of measures to bolster its financial strength, improve its attitude to risk and tap into economic growth in Asia, Africa and the Middle East, as Chief Executive Bill Winters marked his first five months at the helm by laying out how he intends to restore the bank to health.

Standard Chartered said it will raise GBP3.3 billion in a rights issue and axe its final dividend for 2015 to strengthen its balance sheet, as the bank reported that it swung to a third-quarter loss on a jump in impairment charges. The two-for-seven rights issue is designed to increase the group's common equity tier one capital ratio, a key measure of financial strength, to 13.1% on June 30 levels from 11.5%. The issue price of the rights issue has been set at 465 pence, a 35% discount to the Monday's closing price of 713.60p.

At the other end of the spectrum, Meggitt ended the day as the biggest winner in the blue-chip index, closing up 4.5% at 373.20 pence.

Barclays said it is rare that it finds itself saying an aerospace and defence company looks too cheap, but following the share price plunge Meggitt suffered after its profit warning last week, it is now firmly in that bracket. The bank does harbour some concerns about the near-term visibility for Meggitt and its capital deployment discipline following recent acquisitions, but this looks to have been well priced into the stock.

Barclays said Meggitt shares are at a "compelling entry point" for investors with limited further downside risk. While it cut its target price to 420 pence from 610p to reflect the near-term challenges the stock faces, Barclays kept its Overweight rating intact.

In the FTSE 250, Stagecoach Group, closing up 4.3%, and Go-Ahead Group, closing up 2.3%, were among the biggest winners.

The transport operators saw their respective share prices rise as they welcomed the decision made by the Tyne and Wear Quality Contract Scheme Review Board that the bus franchising proposal tabled by the North East Combined Authority has failed to meet the necessary statutory tests.

The transport executive for the authority had proposed that bus services should be franchised in Tyne and Wear through the letting of contracts, with local taxpayers taking on the risk of the local bus network. This would have replaced the current system whereby services are largely commercially-funded by bus operators.

Still to come Tuesday, European Central Bank President Mario Draghi is scheduled to give a speech in Frankfurt at 1900 GMT.

In a busy day in the economic data calendar Wednesday, the British Retail Consortium shop price index is expected to be released overnight, with the Japanese Markit services Purchasing Managers' Index reading for October due at 0035 GMT and the Chinese Caixin services PMI reading for October at 0145 GMT. Consumer confidence data from Japan are expected at 0500 GMT.

Later on, the ECB's non-monetary policy meeting is scheduled for 0800 GMT, ahead of a raft of services and composite PMI's for October from across Europe. The French services and composite PMIs are at 0850 GMT, the German equivalent are at 0855 GMT and the eurozone readings follow at 0900 GMT.

The latest UK services PMI reading is expected at 0930 GMT. According to FXStreet.com, economists' expectations are for the reading to increase to 54.5 in October, having come in at 53.3 in September.

Producer Price Index data for the eurozone is set to be published at 1000 GMT.

In the US, the Mortgage Bankers Association releases its MBA mortgage applications data at 1200 GMT, with employment data from Automatic Data Processing due shortly after at 1315 GMT. Trade balance data is scheduled to be released at 1330 GMT, with Markit services and composite PMI readings at 1445 GMT. The ISM non-manufacturing PMI is published at 1500 GMT.

After the UK equity market close, the Bank of Japan is set to release its monetary policy meeting minutes at 2350 GMT.

On top of the data, investors will also be keeping a close eye on a number of speeches from central bankers from around the world Wednesday. US Federal Reserve Chair Janet Yellen is scheduled to give a speech at 1500 GMT, with US Fed Vice-Chairman Stanley Fisher due to speak at 2200 GMT.

In the corporate calendar, FTSE 100-listed Glencore, Legal & General Group, Old Mutual and Persimmon are due to provide trading updates Wednesday, with fellow blue-chip Marks & Spencer scheduled to publish its half-year results. In the FTSE 250, Onesavings Bank, JD Wetherspoon and Stagecoach are set to release trading statements, while Vedanta and Wizz Air publish their half-year results.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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