LONDON (Alliance News) - UK stocks closed higher Monday as global markets were lifted by the weekend news that the US and five other world powers have reached a deal that limits Iran's nuclear programme, the first diplomatic breakthrough since Tehran's nuclear activities came to light 10 years ago.
The deal calls for the Islamic Republic to limit its nuclear programme, to allow some facility inspections and to give up some previously enriched uranium, as well as freezing construction on a plutonium reactor. In return, Iran will be have USD7 billion to USD10 billion of sanctions lifted.
US President Barack Obama called the agreement an important first step toward a comprehensive solution containing, "substantial limitations, which will help prevent Iran from building a nuclear weapon."
Israel, however, has strongly condemned the interim deal as asking too little of Iran while taking off too much pressure. Israeli Prime Minister Benjamin Netanyahu said it is, "not a historic agreement - it is a historic mistake." After a cabinet meeting, Netanyahu said, "This agreement has made the world a much more dangerous place."
Oil prices have been hit hard. With markets factoring in a potential decline in geopolitical risk premium in the coming months, Brent prices have plummeted, said Michael Hewson, chief market analyst at CMC Markets.
Alongside this, the loosening of international sanctions is expected to boost the supply of oil coming from Iran. "Sanctions imposed against Iran in the past two years have seen exports from the OPEC member slashed by more than half, helping keep Brent above USD100 a barrel despite weak global demand," said Spreadex's Max Cohen.
Moreover, given the recent downgrades to global growth forecasts, CMC's Hewson expects demand to remain on the weak side, adding further pressure to the commodity's price.
At the close of the UK equity market, Brent oil trades at USD110.22 per barrel.
The FTSE 100 closed 0.3% higher at 6,694.62, the FTSE 250 closed up 0.7% at 15,299.92, and the AIM All-Share index closed up 0.1% at 818.55. Similar positive sentiment was shared in Europe; with the French CAC closing up 0.6% and the German Dax closing up 0.9%.
US markets continued to push higher Monday, following yet another strong performance Friday. At the London close, both the Nasdaq Composite and S&P 500 were up 0.1%, while the DJIA was 0.2% higher.
The fallout from Iran's nuclear agreement has been felt on an individual stock basis. International Consolidated Airlines Group, closing up 2.7% at 372.591 pence, easyJet, closing up 1.5% at 1,426.50p, and TUI Travel, ending up 1% at 362.508p, were three of the biggest gainers on the blue-chip index. As heavy fuel consumers, the companies were lifted by the fall in oil prices.
At the other end of the spectrum, however, oil and gas producers fell. Tullow Oil closed down 0.8% at 880.3031p, BP closed down 0.7% at 490.10p, and Royal Dutch Shell fell 0.3% to 2,098.71p.
FTSE 250-listed Essar Energy, closing down 13% at 87.35p, was also hit by the falling price of oil. However, the driving force behind Essar Energy's fall was the widening of its pretax loss in its first half as increased sales could not offset depreciation in the Indian rupee and increased costs. Essar also was hit by a 2.9% increase in its cost of sales to USD12.81 billion from USD12.45 billion and an increase in selling and distribution charges to USD100.4 million from USD61.6 million the previous year.
Away from the falling oil price, Babcock International Group closed down 3.3% at 1,281.1856p after it confirmed that it is in exclusive discussions regarding the establishment of a joint venture with Avincis, a provider of aviation services for mission-critical operations. The fact that the shares are among the biggest blue-chip fallers suggests that there is a market feeling that Babcock may end up overpaying for Avincis or take on liabilities it shouldn't, said WH Ireland analyst Nick Spoliar.
Data released Monday showed an unexpected decline in UK mortgage approvals in October from the previous month. The number of mortgages approved for house purchases declined to 42,808 from 43,182 in September. Economists had forecast approvals to rise to 45,200. However, approvals for house purchase were 33% higher than a year earlier. Assistance schemes for mortgages, such as Help to Buy, are supporting first-time buyers and housing chains generally as housing market activity rises.
While the deal with Iran was the topic of the day, Peter Boockvar, chief market analyst at the Lindsey Group, believes that, "the week's performance for stocks and bonds will still be determined by the US economic data and how the markets think the Fed will eventually respond."
The Dallas Fed Manufacturing Business Index released late Monday came in at 1.9, falling from 3.6 previously.
In the data calendar Tuesday, inflation report hearings are due at 1000 GMT. In the US, housing starts and building permit data for both September and October is released at 1330 GMT. US consumer confidence for November is scheduled for 1500 GMT.
In corporate news, blue-chip Severn Trent is joined by FTSE 250-listed De La Rue, Daejan Holdings, and KCOM Group, amongst others, in releasing interim results Tuesday. FTSE 250-listed Britvic and Mitchells & Butlers release preliminary results.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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