Oil Helps Struggling Stocks Amid Cautious Trade

LONDON (Alliance News) - Stock prices were lower Tuesday midday, with a risk-off mood prevailing amid a further escalation of tensions between North Korea and the US, while Monday's Kurdish independence referendum in Iraq was supporting oil prices and the shares of London-listed oil majors.

Meanwhile, UK mortgage approvals increased to a six-month high in August, data published by UK Finance showed on Tuesday. The number of mortgage approvals rose to 41,807 in August from 41,644 in July. This was the highest since February, when it totalled 42,328.

Gross mortgage borrowing was GBP13.2 billion, which was in line with recent months, but 6% higher than August 2016. Net mortgage borrowing grew 2.6% the from previous year.

Data showed a slight slowdown in UK credit card borrowing growth, to 5% in August from 5.3% a month ago. Annual growth in overall consumer credit slackened to 1.5% from 1.9%.

The pound was largely unchanged following the data, quoted at USD1.3476 midday, down from USD1.3515 at the London equities close on Monday.

The FTSE 100 index was just 0.52 points lower at 7,300.77 Tuesday midday. The mid-cap FTSE 250 index was down 0.2% at 19,518.77, and the AIM All-Share index was flat at 996.64.

The BATS UK 100 index was down 0.1% at 12,406.23. The BATS 250 was down 0.2% at 17,774.39, while the BATS Small Companies was 0.1% higher at 12.181.00.

IG market analyst Joshua Mahony said markets were once again struggling "as the risk-off sentiment driven by the continued war of words between the US and North Korea continues to dominate".

The White House late Monday dismissed as "absurd" an accusation by North Korea that US President Donald Trump had declared war on the Asian nation, with Foreign Minister Ri Yong Ho claiming on Monday that Pyongyang could now shoot down US aircraft.

"Since the US declared war on our country, we will have every right to [take] countermeasures, including the right to shoot down the US bombers even when they are not yet inside the airspace border of our country," Ri told reporters in New York, where he was attending the UN General Assembly.

The US and North Korea have been engaged in a heated exchange in the face of recent missile and nuclear tests by North Korea, and the US on Friday expanded its sanctions regime against Pyongyang in a bid to cut off international banking and trade.

The inflamed rhetoric helped gold remain above the USD1,300 mark to be quoted at USD1,304.89 Tuesday midday, up from USD1,293.63 an ounce at the London equities close on Monday.

In European equities, the CAC 40 index in Paris down up 0.1% and the DAX 30 in Frankfurt was up 0.2% Tuesday midday.

"The euro has been hit hard at the start of the week, with yesterday's German election driven downside being extended today, and EURUSD hitting a month low in early trade. The impending Catalonian referendum is certainly a fear for many within the EU," said Mahony.

The euro was continuing to struggle, quoted at USD1.1795 Tuesday midday, down from USD1.1883 at the European equities close on Monday.

The pound hit a two-month high of EUR1.1422 earlier in the session, falling back slightly to be quoted at USD1.1397 Tuesday midday, up from USD1.1357 at the close on Monday.

Merkel's Christian Democrats and their Bavarian-based Christian Social Union allies won a lackluster victory with only 33% of votes on Sunday, down from 41.5% last year, marking the worst result for the conservative bloc since 1949.

Merkel ruled out forming a minority government after Sunday's election, but declined to say whether she expected to form a new government by the end of the year. The SPD have ruled out forming a coalition with the conservatives again.

That is likely to mean coalition talks with the country's Greens, who secured 8.9% of the vote, and the pro-business Free Democrats, who return to the federal stage for the first time in four years with a 10.7% share of the vote.

"It could be some time before we hear even the possibility of a coalition government being formed in largest eurozone country. While the political wrangling go on behind closed doors, traders won't be filled with confidence," noted David Madden, market analyst at CMC Markets.

Meanwhile, residents in Catalonia are set to go to the polls on Sunday to decide whether the region should become autonomous of the rest of Spain.

Referendums are "clearly a major market driver at the moment", IG's Mahony said, the Iraqi Kurdistan vote a potential disruption to the region's oil supply.

The Iraqi Kurdistan region was put under intense international pressure ahead of its independence referendum on Monday, with warnings from many countries, including the US, that it could destabilize the region.

Baghdad has repeatedly called the vote unconstitutional.

On Monday, Turkish President Recep Tayyip Erdogan threatened to shut down a pipeline used by Iraqi Kurdistan to send crude oil to Turkey and global markets to show its despleasure at the vote.

Brent oil hit a two-year high of USD59.48 overnight on worries of supply shortage following Erdogan's threats, falling back slightly to be quoted at USD58.77 Tuesday midday, up from USD57.86 a barrel at the close on Monday.

London-listed oil majors were tracking the higher price, Royal Dutch Shell 'B' up 0.7%, Shell 'A' up 0.6% and BP also up 0.6%.

"The half a percent growth seen by both BP and Shell following Brent crude's (admittedly brief) 26 month high has allowed the FTSE to crawl back above 7300," said Spreadex analyst Connor Campbell.

Elsewhere on the London Stock Exchange, Card Factory was the worst mid-cap performer, down 15%.

The greetings card retailer earlier reported a 6.1% increase in revenue in the six months to the end of July, up at GBP179.6 million from GBP169.2 million a year earlier.

However, pretax profit fell 14% to GBP23.2 million from GBP27.0 million a year before, due to increased costs and operating expenses. Underlying pretax profit fell 4.8% to GBP26.3 million from GBP27.6 million.

Cost of sales increased by 10% to GBP133.8 million, while operational expenses increased 11% to GBP21.2 million in the half, due to headwinds from currency exchange rates and payment of the UK national living wage.

"FY19 will continue to see headwinds from foreign exchange and living wage increases; we will continue to mitigate an element of this through business efficiencies," said Chief Executive Karen Hubbard in the statement on Tuesday.

Adding to the retailer's woes, Investec cut the stock to Hold from Buy following its interim results.

Roadside assistance provider AA was down 1.9% at 164.60p, having dropped to a record low of 147.50p earlier in the session, after it appointed Simon Breakwell as permanent chief executive and said it is reviewing the business to ensure it "strengthens the platform for sustainable growth".

Revenue increased 1% in the six months to the end of July, to GBP471 million from GBP467 million year-on-year.

Coupled with a big improvement in margins, pretax profit in the first half soared to GBP80.0 million from GBP48.0 million.

AA said the results were in line with expectations, describing the Roadside division as "robust", while Insurance is "growing".

However, earnings before interest, tax, depreciation and amortisation for the full year is expected to be between GBP390.0 million and GBP395.0 million, AA guided. That would represent a fall from Ebitda of GBP403.0 million in the year to the end of January 2017.

AA also said its IT transformation has been delayed, and a more measured approach to migration will lead to additional capital expenditure of GBP35.0 million into the 2019 financial year.

Close Brothers was down 5.3% after the firm warned that Brexit continues to provide an uncertain outlook, even though current market conditions "remain stable".

The UK merchant bank provides lending, deposit taking, wealth management services and securities trading. It reported pretax profit of GBP258.6 million in the year to the end of July, compared to GBP228.5 million profit a year earlier.

Close Brothers raised its dividend for the year by 5% to 60.0 pence per share from the 57.0p payout the year before.

"Although current market conditions remain stable overall, the longer-term economic outlook and impact of Brexit on our customers and wider markets remain uncertain. Against this backdrop, we are fully committed to our proven business model, and we remain confident in our ability to trade successfully through the cycle," Close Brothers said.

FTSE 100-listed WPP was down 1.8% after Morgan Stanley cut the advertising and marketing firm to Equal Weight from Overweight, while mid-cap miner Vedanta Resources benefited from a broker rating upgrade, up 3.8% after Canaccord raised the firm to Speculative Buy from Hold.

Still to come in the UK corporate calendar are third-quarter results from FTSE 100-listed cruise line operator Carnival at 1500 BST.

Stocks in New York are called for a mixed open on Tuesday, with the Dow Jones Industrial Average seen flat, the S&P 500 index slightly lower and Nasdaq Composite pointed 0.2% higher.

New homes sales figures from the US are due at 1500 BST, while Federal Reserve Chair Janet Yellen is scheduled to address a gathering in Cleveland, Ohio after the London market close at 1745 BST.