Heading into the close the FTSE 100 is feeling the effect of declining oil prices, as the impact of the OPEC meeting makes itself felt in energy stocks.
UK markets
----------------
Mining stocks have been serial underperformers in recent months, hobbling the FTSE’s attempts to rally along with other indices, and now it looks like oil firms will join them as a drag on performance. Clearly firms with a focus on consumer spending will be indirect beneficiaries of increased spending thanks to lower petrol prices, but the good done in this way is going to be cancelled out by the baleful impact on earnings in the raw material and energy sectors. The net result may well be that the UK’s leading index is about to enter a period of stagnation, being left behind by its European and American cousins. One company that is rising today is water firm Pennon, which has earned the
approval of shareholders with a dividend hike. The shares have comfortably beaten the FTSE 100 and the FTSE 250, both of which are fractionally down for the year, while Pennon shares have rallied 36%.
US markets
----------
The energy slump took a bite out of US markets in early trading as Americans returned full of turkey and other goodies. The Dow and S&P 500 are around 0.4% higher for the week, but the small cap Russell 2000 and the Nasdaq 100 have raced ahead, with the divergence only increasing in the shortened session. Black Friday mania and the boost to consumer spending from falling petrol prices will keep retailers in the frame, while airlines should also feel positive headwinds. However, having seen equities race higher in November, the question now is where the next positive catalyst comes from. Next week’s ECB meeting has been the driver for two weeks now, but if Mario Draghi flunks the test next
week we might finally see some real selling come back into this market.
Commodities
-----------
Crude prices have spent the day attempting to consolidate after yesterday’s tremendous losses, having touched fresh four-year lows early on this morning. Opinion is divided on whether the fall is good news or bad news, but it looks like the power of OPEC to maintain a balance in the market has been severely weakened, if not broken entirely. Supply gluts are set to stay with us into 2015, and the geopolitical ramifications will be felt throughout the globe, not least in relation to Russia and Putin’s attempts to reconstruct a Moscow-led sphere of influence. Gold prices have continued their retreat from $1200, although the $1180 level is providing support for the price for the time being. The
Swiss gold referendum on Sunday is expected to see a defeat of the motion, which should create further selling pressure as the new week dawns.
FX
--
Sterling has fallen for a second day, unable to escape the cataclysmic fall in oil prices seen yesterday. The thinking currently abroad in markets suggests that falling oil means lower prices, and thus lower inflation, further weakening the argument for raising interest rates. On a political level, Britain’s increasing disagreement with Europe on immigration policy is creating a degree of uncertainty that will only increase as we get closer to a general election and the politicians ramp up the rhetoric by several notches.
UK markets
----------------
Mining stocks have been serial underperformers in recent months, hobbling the FTSE’s attempts to rally along with other indices, and now it looks like oil firms will join them as a drag on performance. Clearly firms with a focus on consumer spending will be indirect beneficiaries of increased spending thanks to lower petrol prices, but the good done in this way is going to be cancelled out by the baleful impact on earnings in the raw material and energy sectors. The net result may well be that the UK’s leading index is about to enter a period of stagnation, being left behind by its European and American cousins. One company that is rising today is water firm Pennon, which has earned the
approval of shareholders with a dividend hike. The shares have comfortably beaten the FTSE 100 and the FTSE 250, both of which are fractionally down for the year, while Pennon shares have rallied 36%.
US markets
----------
The energy slump took a bite out of US markets in early trading as Americans returned full of turkey and other goodies. The Dow and S&P 500 are around 0.4% higher for the week, but the small cap Russell 2000 and the Nasdaq 100 have raced ahead, with the divergence only increasing in the shortened session. Black Friday mania and the boost to consumer spending from falling petrol prices will keep retailers in the frame, while airlines should also feel positive headwinds. However, having seen equities race higher in November, the question now is where the next positive catalyst comes from. Next week’s ECB meeting has been the driver for two weeks now, but if Mario Draghi flunks the test next
week we might finally see some real selling come back into this market.
Commodities
-----------
Crude prices have spent the day attempting to consolidate after yesterday’s tremendous losses, having touched fresh four-year lows early on this morning. Opinion is divided on whether the fall is good news or bad news, but it looks like the power of OPEC to maintain a balance in the market has been severely weakened, if not broken entirely. Supply gluts are set to stay with us into 2015, and the geopolitical ramifications will be felt throughout the globe, not least in relation to Russia and Putin’s attempts to reconstruct a Moscow-led sphere of influence. Gold prices have continued their retreat from $1200, although the $1180 level is providing support for the price for the time being. The
Swiss gold referendum on Sunday is expected to see a defeat of the motion, which should create further selling pressure as the new week dawns.
FX
--
Sterling has fallen for a second day, unable to escape the cataclysmic fall in oil prices seen yesterday. The thinking currently abroad in markets suggests that falling oil means lower prices, and thus lower inflation, further weakening the argument for raising interest rates. On a political level, Britain’s increasing disagreement with Europe on immigration policy is creating a degree of uncertainty that will only increase as we get closer to a general election and the politicians ramp up the rhetoric by several notches.
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