LONDON MARKET OPEN: Rolls-Royce And Oil Stocks Lead Declines

Thu, 12th Nov 2015 08:37

LONDON (Alliance News) - London stocks opened lower Thursday, with oil stocks pushing lower amid falling crude prices, while Rolls-Royce Holdings led the blue-chip fallers after issuing another in a recent series of profit warnings.

The FTSE 100 index opened down 0.3% at 6,277.51 points, the FTSE 250 was down 0.4% at 17,032.74, and the AIM All-Shares was down 0.2% at 741.26.

Rolls-Royce was losing power, down 16%, after it affirmed its 2015 guidance but said profit will come in at the low end of expectations. The FTSE 100 jet engine and power turbine maker also downgraded its expectations for 2016 thanks to revenue mix changes and weaker margins.

The aerospace and defence engineering group also said it will review its dividend policy in light of the weak expectations for 2016, with any changes to be announced in due course, and said it will undertake a wide-ranging restructuring of the business, with plans to save around GBP150 million to GBP200 million per year.

"The company is already worth 40% less than two years ago, and it looks like the shares have still got further to fall," said Alex Joyner, senior analyst at Galvan Research. "[Chief Executive] Warren East's cost-cutting plans suggest he knows what needs to be done, but will it be enough to stem the bleeding?,"

Also dragging down the FTSE 100 were oil-related stocks, after a retreat in crude prices amid concerns about rising US inventories. The American Petroleum Institute reported Wednesday that US crude oil inventory rose by 6.3 million barrels, a much larger-than-expected build.

Brent crude was quoted at USD45.86 a barrel Thursday morning, having fallen on Wednesday from its intraday high of USD47.81 a barrel. US benchmark West Texas Intermediate was at USD43.07 a barrel, having touched an intraday high on Wednesday at USD44.08 a barrel.

Later in the day, the Energy Information Administration oil stocks data are expected at 1600 GMT.

Royal Dutch Shell 'A' was down 2.1% and BP down 0.6%. Premier Oil was down 2.5%, John Wood Group down 2.1% and Tullow Oil 1.8%.

3i Group was the best blue-chip performer, up 2.7% after it said it will remain "cautious and disciplined" in its investment approach, amid uncertainty about the outlook for growth in areas such as the Eurozone and China, a challenging macroeconomic and geopolitical landscape, and "fragile" investor confidence.

"We have completed another solid half year with each business making important progress. The macro and market environment has clearly deteriorated over the course of this year, and the steps we have taken since 2012 to create a more resilient business are proving their value," Chief Executive Simon Borrows said in a statement.

The private equity group's update came as it reported that it generated a total return on shareholders' funds of 4.4% in the first half to September 30 against the 7.1% recorded in the corresponding period the prior year. Net asset value per share increased to 401 pence at the end of September from 396p at the end of March, after accounting for the payment of a 14p final dividend for the prior financial year.

BAE Systems was up 1.4%. The defence contractor said it will cut jobs in its military arm due to an anticipated reduction in Typhoon production, though it remains confident on it current outlook.

BAE said it has continue to achieve solid growth in commercial markets in 2015 and is confident on an uptick in defence spending from both the UK and US governments given recent budget commitments made in the former and the Congressional budget approval secured in the latter.

The group said it taking actions to reduce its current production rate of Typhoon fighter jets in order to ensure production continuity at competitive costs over the medium term. As a result, the group will cut 371 jobs in its Military & Air Information business, which will hit its results for 2015.

In Europe, the French CAC 40 was down 0.8%, while the German DAX 30 was down 0.5%.

Germany's inflation accelerated as initially estimated in October, final data from the Destatis showed Thursday. Consumer prices rose 0.3% year-on-year in October after staying flat in September. The latest gain was the fastest since June, when prices climbed at the same pace. Month-on-month, consumer prices remained flat following a 0.2% fall in the prior month.

Meanwhile, France's inflation rose by more than expected. Month-on-month, the consumer price index rose 0.1%, above expectations of a flat reading, while year-on-year it rose 0.2%, also ahead of economists forecast of a 0.1% lift.

House prices in the UK remain on an upward curve, the latest house price balance from the Royal Institution of Chartered Surveyors showed on Thursday with a score of 49%. That topped forecasts for 45%, and it was up sharply from 44% in September.

In Asia on Thursday, the Japanese Nikkei 225 index closed flat. In China, the Shanghai Composite ended down 0.5%, and the Hang Seng index in Hong Kong finished up 2.4%.

Wall Street closed lower on Wednesday, with the Dow 30, the S&P 500 and the Nasdaq Composite all down 0.3%.

Lloyds Bank said the focus Thursday will be on speeches from central bankers, with European Central Bank President Mario Draghi due to speak before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels at 0830 GMT.

"His comments will be closely scrutinised to gauge the degree of consensus on the Governing Council to expand the QE programme and/or cut the deposit rate at the next meeting on 3 December," said Lloyds analyst Hann-Ju Ho. "More hawkish members have indicated caution about easing policy further, but Mr Draghi last week reaffirmed comments he made at the last press conference that 'the degree of monetary accommodation will need to be re-examined'."

Several members from the US Federal Reserve also are expected to speak later in the day, with Fed Chair Janet Yellen scheduled at 1430 GMT, shortly after Federal Reserve Bank of St. Louis President James Bullard, due at 1415 GMT.

Richmond Federal Reserve Bank President Jeffrey Lacker at 1445 GMT, Fed Vice-President Stanley Fischer at 1500 GMT and Federal Reserve Bank of Chicago President Charles Evans at 1515 GMT. Federal Reserve Bank of New York William Dudley is due to speak at 1715 GMT.

Also in the economic calendar, eurozone industrial production readings for September is due at 1000 GMT. In the US, weekly initial and continuing jobs data are expected to be published at 1330 GMT, with the US monthly budget statement due after the UK equity market close at 1900 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com