RDSA.L Share News (RDSA)

LONDON (Alliance News) - UK stocks ended lower Tuesday, dragged by commodity-stocks after a drop in crude prices, while investors focussed on the upcoming US Federal Reserve monetary policy decision of Wednesday, after the Bank of Japan left monetary policy unchanged.

"Sentiment has been hurt by the weaker oil and commodity prices which have weighed heavily on miners. In addition, the inaction by the Bank of Japan overnight has encouraged speculators to book some profit on their long positions opened post the ECB's decision to expand QE last Thursday," said FOREX.com analyst Fawad Razaqzada.

The Bank of Japan refrained from expanding its monetary stimulus as policymakers wait to see the impact of the negative interest rate which it set in January.

Governor Haruhiko Kuroda and his board members decided by an 8-1 majority vote to hold the BOJ's target of raising the monetary base at an annual pace of about JPY80 trillion. Policymakers voted 7-2 to maintain the -0.1% interest rate on current accounts that financial institutions maintain at the bank.

The Japanese central bank had introduced the negative interest rate in January in order to achieve its targeted 2% inflation at the earliest possible time. It said it would take additional easing measures if needed for achieving the price stability target.

Razaqzada also highlighted that Tuesday's weak trading was due to the fact that "some traders are simply sitting on their hands" as they wait for the US Federal Reserve monetary policy statement on Wednesday.

The FOMC commenced its two-day policy meeting on Tuesday and will be the main focus Wednesday, with the US central bank's policy decision and economic projections expected to be published at 1800 GMT, followed by a press conference held by Chair Janet Yellen at 1830 GMT.

"The Fed is highly unlikely to cut interest rates at this meeting, but the market is wary of potentially hawkish remarks that would suggest a June rate rise is firmly back on the table. This scenario would probably cause US markets to fall, at least initially anyway. But in the event that the Fed sounds more dovish than expected, stocks are likely to stage a relief rally," said Razaqzada.

However, before the Fed decision, UK Chancellor of the Exchequer George Osborne is set to take aim at public services in his Budget, with spending cuts set against a splash of new spending commitments for roads, railways and housing, plus incentives to increase the amount Britons save. The Budget presentation is scheduled for 1230 GMT Wednesday.

A day after the Fed's two-day meeting, the Bank of England's Monetary Policy Committee is due to meet on Thursday, completing what some have called "the central banks week".

The pound was quoted at USD1.4159 at the London equities close, lower than the USD1.4322 at the close on Monday. Meanwhile, the euro was standing at USD1.1106, slightly lower compared to USD1.1111 at the close Monday.

Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.2%, the S&P 500 down 0.5% and the Nasdaq Composite down 0.6%.

Europe's main indices also ended in the red, with the CAC 40 in Paris down 0.8% and the DAX 30 in Frankfurt down 0.6%.

The FTSE 100 ended down 0.6%, or 34.60 points, at 6,139.97, dragged by its heavy-weight mining sector, while blue-chip oil stocks also ended in the red following a sharp drop in crude prices.

Brent crude was quoted at USD38.53 a barrel at the London equities close Tuesday. The North Sea benchmark added to the declines seen on Monday, after the Organization of the Petroleum Exporting Countries said it now expects lower demand for its crude oil in 2016 than previously anticipated.

In its monthly report, OPEC said demand for its crude oil is projected at 31.5 million barrels per day in 2016, down by about 100,000 barrels per day from what it had forecast in its last report.

Brent went below the USD40 line on Monday, standing at USD39.11 a barrel at the close. Brent's highest level since it touched multi-year lows around the USD27 line has been the USD41.45 a barrel level reached earlier in March.

Meanwhile, the gold price also declined, with the metal quoted at USD1,231.40 an ounce, lower than the USD1,243.00 at the close Monday.

Royal Dutch Shell 'A' shares ended down 0.5%, while BP dropped 1.0%. But it was miners at the bottom of the FTSE 100, with Anglo American down 11%, BHP Billiton down 6.5%, Glencore down 5.5%, Antofagasta down 4.5%, and Rio Tinto down 4.0%.

IG analyst Joshua Mahony said the "blockbuster recovery" across the commodity sector is showing signs of weakness, and the analyst added "there is a feeling" the traders who had supported the upward bounce for mining stocks will take their profit in the hope of a better entry point after the decline.

Anglo American ended as the worst performer, after Morgan Stanley cut the miner to Underweight from Equal Weight. The financial firm also cut Rio Tinto to Equalweight from Overweight.

Meanwhile, Macquarie downgraded BHP to Underperform from Neutral and Antofagasta to Underperform from Neutral.

Shares in the latter also suffered after the miner reported much lower earnings, delayed projects, cuts spending plans and skipped its final dividend payout following a tough 2015 where its balance sheet deteriorated.

Antofagasta, which primarily produces copper but also gold and molybdenum from its mines in Chile, saw the already difficult conditions within the wider mining industry exacerbated by operational difficulties and a questionable capital investment policy that pushed it into debt during 2015.

As a result of the negligible earnings in the year, and following a weaker second half than first, Antofagasta did not declare a final dividend for the year, signalling the end of what had been a historically-strong payout record. Shareholders will have to settle for the 3.1 cent per share interim dividend paid for the first half of the year. This will mean its 2015 payout is 86% lower than the 21.5 cents paid in 2014, which had already fallen 77% from its 2013 payout level.

Life insurer and investment manager Legal & General also ended in the red, down 6.4%. The company said profit and cash generation improved in 2015, prompting a higher dividend, though future increases in the payment to shareholders will be more strongly informed by underlying business growth.

Pretax profit rose to GBP1.36 billion in 2015 from GBP1.24 billion in 2014, slightly ahead of company-supplied analyst consensus of GBP1.34 billion. Net cash generation grew by 14% to GBP1.26 billion, ahead of the GBP1.22 billion expected by analysts. Legal & General lifted its total dividend per share for the year to 13.40 pence from 11.25p in 2014, beating the 13.34p expected by analysts, and it committed to a "progressive" dividend policy.

Meanwhile, shares in Royal Bank of Scotland Group were pushed higher after Goldman Sachs added the lender to its Conviction Buy list, having previously had it at Neutral. The stock ended up 1.5%.

The mid-cap FTSE 250 ended down 0.4%, or 58.34 points, at 16,634.76, while the AIM All-Share finished down 0.3%, or 2.01 points, at 710.99 points.

Mid-cap insurer Hastings Group ended up 4.4% after the group declared its first dividend since listing as operating profit rose to GBP126.1 million in 2015, up from GBP103.5 million in 2014, and net earned premiums increased to GBP255.9 million from GBP199.1 million. Hastings declared a maiden dividend of 2.2 pence per share.

Ocado Group also ended in the green, up 3.4%. The online grocery delivery firm reported growth in sales in the first quarter of its financial year, boosted by a rise in average orders per week and said it expects to continue growing ahead of the online grocery market.

Shares in car distributor Inchcape ended up 2.1%. The company said its pretax profit and revenue both edged up in 2015, driven by a robust performance in its emerging markets business. The company said pretax profit rose 2.7% to GBP262.6 million from GBP255.8 million in 2014, as revenue inched up to GBP6.8 billion from GBP6.7 billion.

Russian steelmaker and miner Evraz ended down 8.7% after the group said its loss narrowed in 2015 despite revenue falling, and said it has made a series of cuts to its capital expenditure and operating costs to try to cushion the blow of lower commodity prices and demand.

In the UK corporate calendar Wednesday, Smiths Group publishes half-year results, while Hikma Pharmaceuticals, Paysafe, EMIS Group, WANdisco, Cape, and Tritax Big Box release full-year results.

Finsbury Food Group and Produce Investments publish half-year results, while Surgical Innovations Group, Microsaic Systems, Accesso Technology Group, Xaar, Skyepharma and Advanced Medical Solutions Group release full-year results.

Also in the economic calendar Wednesday, the UK's unemployment rate is due at 0930 GMT. In the US, the consumer price index is due at 1230 GMT. US industrial production is due at 1230 GMT, while the Energy Information Administration oil stocks data are due at 1430 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com

Copyright 2016 Alliance News Limited. All Rights Reserved.