MARKET COMMENT: London Resources Stocks Plunge On Weak Commodities

LONDON (Alliance News) - UK stock indices were the heaviest hit in a global equities market sell-off Tuesday, with just four FTSE 100 stocks making gains, as a strong dollar and weak Chinese data weighed on commodities prices.

London's blue-chip index, which is heavily weighted with resources sector stocks, closed down 2.5% at 6,702.84, marking its worst one-day fall since October 15, while the FTSE 250 fell 1.4% to 16,922.49 and the AIM All-Share index declined 0.6% to 711.63.

European stocks were more resilient than London but still ended lower. The CAC 40 closed down 1.0% and the DAX 30 ended down 0.6%. Wall Street was also down sharply at the close of European equity markets, with the DJIA down 1.5%, the S&P 500 1.4% lower and the Nasdaq Composite down 1.5%.

The dollar continued to strengthen in the wake of strong US jobs data on Friday and the expectations of a summer rate hike by the US Federal Reserve. The Euro fell to a near 12-year low against the greenback at USD1.06963. The Euro was also weakened by the second day of the European Central Bank sovereign bond-purchasing and continued concerns about a possible Greek exit from the eurozone.

"The search for an end to the selling of EUR/USD continues, but with ECB QE in operation it looks like downward pressure will carry the euro ever closer to parity against the dollar. The slow disintegration of the recent Greece deal is not helping either, while most investors are prudently looking to boost dollar holdings at the expense of the euro," said Chris Beauchamp, senior market analyst at IG.

The dollar also rose to its highest level since July 2007 against the Japanese Yen to JPY122.023, but the pound has maintained above the psychological USD1.50.

The strength of the dollar weighed on commodities with oil, in particular, taking a hit. Brent fell to a low of USD56.31 a barrel, its lowest level since February 12, while West Texas Intermediate fell to a low of USD48.42 a barrel.

Oil-related stocks were amongst the worst-performing stocks in the FTSE 100, with Tullow Oil, down 6.2%, the worst performer, and BG Group, down 5.1%, the second-worst performer. Royal Dutch Shell 'B' ended down 4.8%, Weir Group down 3.3%, and BP down 4.0%.

In the FTSE 250, Cairn Energy closed down 7.3%, Premier Oil down 6.8% and SOCO International, down 5.4%.

The FTSE 350 oil and gas producers sector index closed down 4.8%, the worst-performing sector index, followed by the oil equipment services and distribution sector index, which dropped 3.9%.

The mining sector in London was also hit by weak Chinese producer prices. The National Bureau of Statistics said Chinese producer prices declined for the 36th consecutive month in February, weighing heavily on profit margins of companies. Industrial producer prices were down 4.8% from last year, which was bigger than a 4.3% fall seen a month ago. Economists had forecast prices to fall again by 4.3%. This was the biggest fall since October 2009. On a monthly basis, producer prices slid 0.7% after declining 1.1% in January.

Antofagasta ended down 4.3%, Glencore and Rio Tinto both ended down 1.7%, and BHP Billiton closed down 1.5%. In the FTSE 250, Lonmin closed as the worst performer, down 10.0%, while KAZ Minerals closed down 6.8% and Vedanta Resources down 6.9%.

The FTSE 350 mining sector index ended as the third-worst performing sector index, down 3.8%.

Allied Minds, up 7.7%, was one of the best performers in the FTSE 250. The company said it has formed BridgeSat Inc, which will build an optical connectivity system to improve the wireless transfer of data from satellites. BridgeSat co-invented the technology with the US federally-funded Aerospace Corp as part of a commercialisation collaboration.

Inchcape ended up 6.3% after the automotive retailer and distributer said its pretax profit declined due to a writedown on its Russian operations, but the company reported a rise in revenue and hiked its dividend. The company said its pretax profit for 2014 was GBP255.8 million, down from GBP266.1 million last year due to a GBP47.4 million goodwill impairment charge the company booked on its Russian operations. It said it was confident in the long-term potential of the Russian operations, but had reduced its near-term expectations due to the geopolitical uncertainties affecting the country. Still, stripping out exceptional costs, Inchcape's pretax profit rose to GBP303.2 million from GBP274.6 million.

Esure Group, down 9.1%, was the second-worst performer in the FTSE 250. The insurer reported a fall in pretax profit for 2014, blaming motor insurance market conditions and costs related to the acquisition of the remaining parts of GoCompare.

The company said its pretax profit for 2014 was GBP103.3 million, down 13% on the GBP118.4 million posted a year earlier due to the challenging conditions in the motor insurance market and due to costs related to the acquisition of the 50% of price comparison service GoCompare that it did not already own. Gross written premiums fell and the group cut its final dividend.

Optare, up 43%, was the biggest gainer in the AIM All-Share index. The bus maker got a GBP7.3 million order for its Solo single-decker buses from Stagecoach Group in the UK. Optare said it expects to deliver the Solos with Euro 6 emissions standards by the end of this year, although it didn't say how many. It said the order is in addition to five fully electric vehicles that it will deliver this month.

In the economic calendar Wednesday, Chinese retail sales are due at 0530 GMT, European Central Bank President Mario Draghi will be speaking in Frankfurt at 0800 GMT, UK industrial and manufacturing production for January is at 0930 GMT, and US MBA mortgage applications for the week ending March 6 is at 1100 GMT.

In the corporate calendar, drugmaker Hikma Pharmaceuticals, estate agency Foxtons Group, online gaming operator Bwin.party Digital Entertainment, and recruitment company Michael Page International will all be reporting full-year earnings. British home shopping retailer N Brown Group will be issuing a trading statement as will online-only fashion retailer Boohoo.com.

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

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