LONDON MARKET MIDDAY: "Risky" Oil Price Rally Supports Stocks

LONDON (Alliance News) - Oil prices were again the main driver of the London stock market midday Friday, with equities tracking the commodity higher as traders anticipated next week's meeting of oil producers to discuss a freeze in production.

"A recovery in risk appetite on Friday that has seen funds flow out of bonds and back into equities can almost exclusively be laid at the feet of a rebound in the oil price," said Jasper Lawler, market analyst at CMC Markets.

However, Lawler said Friday's rebound in oil prices and equities is on "risky ground" as there is still an air of uncertainty whether an agreement on a freeze to oil supply can be reached by oil producers in the Doha meeting on April 17.

On several occasions Iran has ruled itself out of a freeze to production as it looks to regain market share after international sanctions on it were lifted. Last week, Saudi Arabia's deputy crown prince, Mohammed bin Salman, signalled in an interview with Bloomberg that if any country raises output, Saudi Arabia will follow suit. But then earlier this week Kuwait's OPEC governor said the meeting will deliver a freeze in output.

"Oil prices continue to get excited by the April 17 Doha meeting despite a chance of a production freeze deal looking slim to say the least with Iran saying 'No' and Saudi Arabia saying 'Only with Iran'. Desire is there, but as in break-up speak 'it's complicated'," said Accendo Markets head of research Mike van Dulken.

At midday, Brent oil traded at USD40.69 a barrel, higher than the USD38.93 a barrel at the London stock market close on Thursday. US benchmark West Texas Intermediate was at USD38.52 a barrel, compared to USD36.84 a barrel late Thursday.

The rise in oil prices was supporting shares in oil producers. Royal Dutch Shell 'A', up 2.1% and BP, up 2.1%, were both amongst the best performers in the FTSE 100.

The blue-chip index itself was up 0.7%, or 43.45 points, to 6,180.34. The FTSE 250 was up 0.6% to 16,821.17 points, and the AIM All-Share was up 0.2% at 718.46.

In Europe, the French CAC 40 index was up 0.8% and the German DAX 30 was up 0.9%.

Ahead of the open on Wall Street, futures pointed the Dow 30 up 0.5%, the S&P 500 up 0.6% and the Nasdaq 100 up 0.7%.

UK stocks and the pound remained resilient in the face of declining UK industrial output. Figures from the Office for National Statistics showed industrial output fell 0.3% month-on-month in February from January when it grew 0.2% and was below expectations for growth of 0.1%.

Manufacturing output dropped 1.1% on a monthly basis reversing a 0.5% rise in January and bigger than a 0.2% fall forecast by economists.

Whilst the pound took a hit from the data,that still left it at a similar level to that at the London equities open: USD1.4052 versus USD1.4050.

Shares in consumer credit reference agency Experian, down 1.8%, and asset manager Schroders, down 1.1%, were both hit by broker downgrades. HSBC cut Experian to Reduce from Buy, and Exane BNP cut Schroders to Neutral from Outperform.

FTSE 250-listed Vectura Group was up 4.1%. The respiratory pharmaceuticals company and Jordan-founded drug maker Hikma Pharmaceuticals said the new drug application for their fluticasone propionate and salmeterol inhalation powder was accepted for filing by the Food & Drug Administration in the US.

The pair are working together on the inhalation powder, which is a generic version of GlaxoSmithKline's Advair Diskus, used to treat asthma and maintain treatment of airflow obstruction and reducing exacerbations in patients with chronic obstructive pulmonary disease. Hikma shares were up 0.6%, while Glaxo shares were flat.

Elementis was the worst performer in the FTSE 250, down 8.1% after Berenberg downgraded the company to Hold from Buy, citing "a full-looking valuation" and the "potential reduction in pricing and margins" within Elementis’s chromium division.

DFS Furniture was down 5.0% to 305.00 pence after private equity firm Advent International Corp said it agreed to sell a 14.1% stake in the sofa retailer for GBP90.0 million.

Advent agreed to sell 30.0 million shares at 300.00p per share to institutional investors, leaving the private equity firm with a 24.1% stake in DFS, held through 51.4 million shares. Settlement of the accelerated bookbuild placing is expected to take place on Tuesday next week, Advent said in a statement.

Digital audio content services company Immedia Group said it signed a new five-year service contract with an undisclosed global brand to provide a supply of branded in-store music and marketing channels.

Under the deal Immedia will provide services to the brand's operations in the UK and Europe, and provide in-store equipment to facilitate delivery of the service, in return for an annual subscription fee per site.

Additionally, Immedia will produce language specific marketing content at contract prices, and will supply its Dreamstream decoder products to stores subscribing to the service. The company's share price more than doubled in response to the news.

Pathfinder Minerals was the worst performer in the AIM All-Share down 35%. The miner said a court in Mozambique made a ruling against the company in its lengthy litigation process. The company wants to appeal the decision as it continues to try to reclaim numerous licenses.

Pathfinder has been fighting over the ownership of Companhia Mineira de Naburi SARL, that hold the licenses. It claimed the rights to the licences were illegally seized by General Jacinto Veloso and Diogo Cavaco and was hoping the court would rule Pathfinder validly acquired a 99.99% stake in Companhia Mineira.

Veloso and Cavaco, for their part, claimed Pathfinder failed to pay the USD10.0 million required under the option agreement in place to buy the shares, meaning these licences could not have been seized as Pathfinder never owned them.

Still ahead in the economic calendar, the National Institute of Economic and Social Research's UK gross domestic product estimate is at 1500 BST, and the Baker Hughes US oil rig count is due at 1800 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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