LONDON MARKET MIDDAY: Underwhelming Oil Output Cut Knocks BP And Shell

(Alliance News) - The London stock market was underperforming European peers at midday on Tuesday, dragged down by its heavyweight oil companies after a disappointing outcome to production talks led by exporting cartel OPEC.

Market sentiment more broadly was cautiously positive as Italy and Spain began the slow process of re-opening their economies following long and stringent coronavirus lockdowns.

The FTSE 100 index was down 20.37 points, or 0.4%, at 5,822.29. The FTSE 250 was down 254.14 points, or 1.6%, at 16,153.78, but the AIM All-Share was up 0.8% at 751.74.

The Cboe UK 100 was down 0.3% at 9,857.38, and the Cboe UK 250 was down 1.1% at 13,991.27. The Cboe Small Companies was up 1.4% at 8,626.50.

In European equities on Tuesday, the CAC 40 in Paris was flat but the DAX 30 in Frankfurt was up 1.1%.

"Equity markets in Europe are broadly higher this morning as the slight loosening of lockdown restrictions in Spain and Italy has lifted sentiment. Some businesses in both countries have reopened and that has given traders some hope. The number of new confirmed infections seems to be tapering off and that has added to the positive move today," said David Madden at CMC Markets.

Coronavirus deaths in the hard-hit US were flat for a second consecutive day, with New York's governor saying the "worst is over" as many countries weigh a gradual reopening of their shattered economies.

While President Emmanuel Macron extended a tight lockdown in France by another month, Italy and Austria are reopening some shops and Spain is restarting construction and factory work.

Italy will reopen some bookshops and laundries on a trial basis Tuesday, as its number of critically ill patients dropped for the 10th straight day despite the death toll topping 20,000.

Stocks in the US are pointed to a stronger start on Tuesday. The Dow Jones is seen 1.2% higher, the S&P 500 up 1.0% and the Nasdaq Composite up 1.4%.

However, CMC's Madden noted: "The FTSE 100 is underperforming against its eurozone equivalents as Royal Dutch Shell and BP have been dragged into the red by the fall in the underlying oil market."

Brent oil was quoted at USD31.73 a barrel on Tuesday, down from USD33.18 late Thursday.

OPEC producers and their allies agreed on Sunday to cut production by 9.7 million barrels a day, which some analysts feared would be too little considering the plunging demand caused by the Covid-19 pandemic.

Craig Erlam at Oanda said the OPEC deal "received the underwhelming reception it deserves".

Producers delivered "right at the bottom end of expectations", he noted.

"This may be the largest ever cut, but we're living through an unprecedented event and demand has fallen off a cliff. It's no surprise to see oil prices paring back the early April gains to sit not far from their lows," said Erlam.

As a result, London-listed oil stocks were lower at midday. BP was down 3.2%. Royal Dutch Shell 'A' shares were down 3.4% and 'B' shares down 3.2%.

Gold, though, was gaining on Tuesday, indicating investors remain somewhat cautious but are confident enough to move out of cash. The safe haven metal was quoted at USD1,718.84 an ounce, up sharply from USD1,677.77.

The precious metal also benefited from a weaker dollar. The pound was quoted at USD1.2532 Tuesday midday, up from USD1.2455 at the London equities close Thursday.

The euro was quoted at USD1.0946, firm on USD1.0942 late Thursday. Against the yen, the dollar was quoted at JPY107.44, down from JPY108.50.

This all helped lift gold miners to the top of the FTSE 100, with Polymetal International up 6.7% and Fresnillo up 5.5%.

AstraZeneca was also among the top performers, up 6.1% after the pharmaceutical giant said its Adaura Phase III trial for Tagrisso, or osimertinib, for the treatment of lung cancer showed positive results.

The trial was stopped early due to "overwhelming efficacy".

The Anglo-Swedish drugmaker said that for three years, the trial assessed Tagrisso as a first-line treatment for "patients with locally advanced or metastatic epidermal growth factor receptor-mutated non-small cell lung cancer". The primary endpoint was disease-free survival, and the trial will now continue to assess its secondary endpoint of overall survival.

Carnival shares fell 5.9% after the cruise operator said it has cancelled cruises worldwide until June 26 and extended the pause in its North American operations.

Last month, the Miami, Florida-based firm had cancelled departures through to May 10. However, Carnival now has cancelled further cruises after the US Centers for Disease Control & Prevention last week extended a 'no sail order' for cruise ships due to Covid-19.

British American Tobacco shares slipped 4.3%. The Times reported that the Lucky Strike cigarette maker is under investigation in the US over suspected sanctions breaches.

The Department of Justice and the Office of Foreign Assets Control, which is part of the US Department of the Treasury and enforces US trade sanctions, are investigating "suspicions of breach of sanctions", The Times said. It is not clear which territory the regulators are focusing on, the newspaper added.

National Express was up 4.1% after securing GBP600 million from the UK government and Bank of England's Covid Corporate Financing Facility, alongside GBP200 million in extra facilities.

Further, National Express said that, before the coronavirus outbreak, the first two months of 2020 delivered significant year-on-year revenue growth of 17%. Since then the transport company has seen a decline in revenue as services have been withdrawn.

Mitchells & Butlers shares were down 6.3%. The pub owner said it has implemented cost-cutting measures as it also secured a waiver from its lenders to prevent a breach of its financing arrangements.

Mitchells & Butlers noted that the government-enforced closure of its pub sites could result in a breach of its financing arrangements. However, it said its lenders have granted a waiver until May 15 in order to avoid a breach.

By Lucy Heming; lucyheming@alliancenews.com

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