LONDON MARKET MIDDAY: Miners and oil producers drag down FTSE 100

Mon, 16th Aug 2021 12:15

(Alliance News) - European markets were swabbed in red at midday on Monday with Asia's downbeat session carrying over to London's blue-chip miners, dragging the FTSE 100 sharply lower.

"It's a downbeat start to trading on Monday with the FTSE 100 giving up some of last week's gains. The oil and mining sectors helped drag down the index as BHP confirmed it was in talks over an exit from its petroleum division," showing the growing unease over oil production, AJ Bell investment director Russ Mould said.

The FTSE 100 index was down 77.19 points, or 1.1%, at 7,141.45. The mid-cap FTSE 250 index was down 94.14 points, or 0.4%, at 23,694.31. The AIM All-Share index was down 0.4% at 1,261.36.

The Cboe UK 100 index was down 1.1% at 711.39. The Cboe 250 was down 0.4% at 21,542.05, and the Cboe Small Companies was 0.3% lower at 15,512.23.

In mainland Europe, the CAC 40 in Paris was 1.1% lower and DAX 30 in Frankfurt was down 0.7%.

Mould continued: "The commodities-related sell-off also followed weak data from China where retail sales slumped - raising questions over demand from the resources-hungry nation."

Growth in China's retail sales and industrial production slowed in July, with a rebound of Covid-19 dragging on demand while recent floods disrupted businesses.

Retail sales rose 8.5% year-on-year in July, the National Bureau of Statistics said, below a Bloomberg consensus forecast of analysts. This figure was also below 12% growth in June, likely reflecting the virus resurgence in dozens of places last month, according to analysts.

"The spread of domestic outbreaks and natural disasters have affected the economy of some regions, and economic recovery remains unstable and uneven," NBS spokesman Fu Linghui told a press briefing.

But he added that "the national economy continues to stabilise and recover" overall. Industrial production rose 6.4% in July, easing as well from the month prior, the NBS said.

Iris Pang, ING's chief economist for Greater China, told AFP that industrial output was weak "because of the semiconductor chip shortage that has affected production".

Among London-listed miners, Glencore was down 2.9% at midday, Antofagasta 2.5%, Anglo American 2.3%, and Rio 2.2%.

BHP was 1.7% lower after confirming it is in talks with Woodside Petroleum regarding the possible acquisition by Woodside of BHP's petroleum business.

"BHP confirms that we have initiated a strategic review of our Petroleum business to re-assess its position and long-term strategic fit in the BHP portfolio. A number of options are being evaluated. One option is a potential merger of the Petroleum business with Woodside Petroleum and a distribution of Woodside shares to BHP shareholders," BHP said.

The division is worth about USD14.7 billion, according to Bloomberg.

AJ Bell's Mould said: "Is the oil and gas industry becoming toxic? News that resources firm BHP is closer to an exit from oil to focus purely on its mining operations is the latest sign of investment moving away from crude.

"If BHP can make this deal happen it would help realise significant value in the business and put a big tick in the ESG box. By exiting the oil business BHP could free up funds to increase its exposure in areas like battery metals and copper where demand from the 'green' economy is likely to be particularly robust."

Perth-based Woodside, for its part, said it "continuously reviews the composition of its asset portfolio and opportunities to create and deliver value for shareholders".

"Woodside is engaged in discussions with BHP regarding a potential merger involving BHP's entire petroleum business through a distribution of Woodside shares to BHP shareholders," Woodside said.

Woodside closed 4.6% lower in Sydney on Monday.

Brent oil was quoted at USD69.72 a barrel Monday morning, down from USD70.94 late Friday. Royal Dutch Shell and BP were tracking oil prices lower, with Shell 'A' shares shedding 2.2% and the 'B' shares down 2.1%, while peer BP was down 2.1%.

HSBC slipped 1.5%. The bank has struck a deal to buy French firm AXA's insurance business in Singapore.

The Paris-headquartered insurer said the the USD575 million sale is expected to complete by the fourth quarter.

AXA Singapore is the eighth biggest life insurer in the city-state by annualised new premiums. It had net assets of USD474 million, annualised new premiums of USD85 million, gross written premiums of USD739 million and profit before tax of USD23 million in 2020.

HSBC plans to merge the business with its HSBC Life Singapore unit.

AXA was 0.7% lower in Paris.

Among London mid-caps, a slew of M&A news was dominating attention.

Future PLC was atop the FTSE 250, up 6.2%, after it confirmed it has acquired consumer media subscriptions business Dennis for about GBP300 million.

The media company said Dennis will be "materially earnings enhancing", and the deal will be funded from existing debt facilities.

As part of the acquisition, Future is acquiring the The Week, MoneyWeek, Kiplinger, Science & Nature, IT Pro, Computer Active, PC Pro, Minecraft World, and Coach. Whilst the current owners, Exponent Private Equity, will retain Viz, Fortean Times, Cyclist and Expert Reviews.

Dennis generated revenue of GBP104.8 million in 2020, a 12% rise on 2019.

Future Chief Executive Zillah Byng-Thorne said: "The materially earnings-enhancing acquisition is highly complementary to our long-standing 'US first' mindset and provides an attractive opportunity to scale our recently created 'Wealth' vertical, whilst diversifying our presence in our 'Knowledge' and 'B2B Pro Technology' verticals."

The announcement confirmed a report by Sky News on Saturday.

Ultra Electronics rose 4.5% after agreeing to a GBP2.6 billion takeover offer from former London listing Cobham, which has pledged to protect UK jobs in a bid to woo regulators.

Cobham will pay GBP35.00 per share in cash for Ultra, valuing the firm at about GBP2.57 billion, which includes a 16.2 pence interim dividend declared earlier by Ultra.

Ultra Electronics shares were trading at 3,306p each.

The London-based aerospace and defence engineering company in July said it had received a non-binding proposal of GBP35.00 per share from Cobham, to which it has now agreed. This had followed a number of earlier proposals, Ultra said, the first of which was made on June 29 at a price of GBP28.00 per share.

The pound was quoted at USD1.3860 midday Monday, flat from USD1.3859 at the London equities close Friday. The euro was priced at USD1.1785, lower from USD1.1795.

Against the yen, the dollar was trading at JPY109.30, down from JPY109.76.

Analysts at ING said: "Political developments in Afghanistan could well be adding to the ongoing deterioration of the global risk environment due to Covid and the re-rating of Asia's growth outlook. It's one reason why the safe-haven dollar may find fresh support in a week where the FOMC minutes could continue to fuel the Fed's hawkish expectations"

"Normally, geopolitical tensions fuel runs for safety and benefit the safe-haven USD, JPY and CHF. For now, those developments are likely exacerbating an already fragile risk appetite, and indeed the JPY and USD have started the week on the front foot," ING added.

US stock market futures were pointed to a lower open as well.

The Dow Jones Industrial Average and the S&P 500 were both called down 0.4%, while the tech-heavy Nasdaq Composite was expected to open 0.3% lower.

Gold was trading at USD1,775.70 an ounce midday Monday, flat against USD1,775.40 late Friday in London.

By Paul McGowan; paulmcgowan@alliancenews.com