MARKET COMMENT: London Stocks Down As Shell Slashes Spending

LONDON (Alliance News) - London stock indices ended lower on Thursday, hit by concerns about low commodity prices as well as further weakness in US stocks amid more worrying earnings reports by some big name companies.

Concerns about the impact of low oil prices were heightened after Royal Dutch Shell said it will slash spending by a further USD15 billion over the next three years in response to the oil price decline, and could cut further if the weak conditions persist.

Oil is becoming more difficult and more costly to extract, and Shell's move is an admission that many planned new projects will be uneconomical at current oil prices, particularly outside North America.

The Anglo-Dutch company, the first of the world's oil majors to report 2014 results, reported higher earnings for the fourth quarter and whole of 2014, as its cost cutting drive helped offset a decline in production and revenue, but its results still missed analysts' expectations.

The Brent oil price has fallen from about USD115 a barrel in June, to trade at USD48.59 a barrel at the close Thursday.

Royal Dutch Shell 'B' shares closed down 4.9% at 2,138.00 pence, the second-worst performing stock on the FTSE 100.

Soco International was one of the worst-performing stocks on the FTSE 250, ending down 5.4%, after the mid-sized oil and gas company said its 2014 production was in line with guidance, but 2015 production and spending will be much lower due to the weak oil price environment.

The FTSE 100 closed down 0.2% at 6,810.60, the FSTE 250 down 0.4% at 16,359.02, and the AIM All-Share index ended down 0.6% at 686.48.

In Europe, the main equity indices ended higher after euro area consumer confidence improved slightly in January, rising to minus 8.5, from minus 10 in December, still indicating net pessimism. France's CAC 40 closed up 0.4%, while Germany's DAX 40 ended up 0.2%.

When the European markets closed, the S&P 500 and the Nasdaq Composite were both down 0.3%, although the DJIA had regained its earlier drop to a one-month low and was up 0.1%.

Qualcomm shares, in particular, tumbled by 10.4% after the mobile chipmaker reported better-than-expected first quarter earnings but slashed its outlook for the full year. Oil services stocks were also under pressure due to the oil price weakness.

Overnight, the Federal Reserve had pledged to remain "patient" on raising interest rates amid unusually low inflation that could derail the US economic recovery, suggesting the central bank is unlikely to raise interest rates until at least June, but probably later.

Wall Street ignored a bigger-than-expected drop in initial jobless claims to 265,000, compared with economists' expectations for a drop to 300,000.

EasyJet was the best performing stock in FTSE 100, closing up 6.2%, after Barclays upgraded the airline to Overweight from Equal-weight, saying its first quarter results represent conclusive evidence that it has developed one of the best low-cost carrier business models in Europe.

"The company has proven our capacity concerns unfounded, growing pricing despite a fierce competitive environment, which could now improve into the summer, despite lower oil," Barclays said in a note to clients. "We think UK demand will remain strong and expect self-help to support fares through the second half."

Diageo closed up 0.6% after the drinks giant said sales improved in its second quarter but were down for the first half as a whole, hit by slower demand in markets such as the US and China, which remained a drag on profit. First half sales came in slightly lower than analysts' expectations for flat organic net sales, but Diageo said organic net sales improved in the second quarter, rising 0.7%.

Miner Fresnillo was the worst performing blue-chip stock, as gold and metals prices continued to drop, closing down 5.2%. Numis cut the miner's price target to 1,000p from 1,100p and its rating to Add from Buy.

Antofagasta also ended down 2.7%, after several brokers cut their price targets for the miner in the wake of its fourth-quarter production report on Wednesday, saying they'd been disappointed with its production guidance for 2015.

Rank Group closed as the best performing stock in the FSTE 250, up 7.3%. The Mecca bingo operator said revenue and profit rose in the first half of the year, driven by casino acquisitions by its Grosvenor Casinos business, while profit improved at its Mecca business thanks to cost savings and the reduction in bingo duty.

FTSE 250-listed Paypoint ended down 6.0% as Numis cut the payments company's price target to 825p from 845p, keeping its rating at Hold. Although the group reported a rise in transaction volumes in the third quarter along with an uptick in revenue and said it expects to meet market expectations for the year, it cautioned on the impact of changes to VAT rules.

Fitbug Holdings was the best-performing stock in the AIM All-Share index, up 28.4%, after reporting that its Kiqplan digital health coaching platform will launch on the new Jawbone Marketplace. Consumer technology and wearable devices firm Jawbone's marketplace is an online store featuring devices and applications that work with Jawbone's range of 'Up' activity trackers.

In the corporate calendar Friday, BT Group will release its third quarter results, while Vedanta Resources will issue a its third quarter production results. Fuller, Smith & Turner will publish a trading update. James Halstead and KCOM Group will both provide trading statements.

In the economic calendar, UK Gfk consumer confidence data is due overnight, followed by German retail sales, French consumer spending and Italian unemployment data during the morning. UK consumer credit and mortgage approval data is due at 0930 GMT, followed by the EU Consumer price Index at 1000 GMT. US GDP data is due at 1330 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com

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