Higher oil prices after recent production cuts from Saudi Arabia and Russia hit investor sentiment in London on Wednesday.
Stocks closed lower fearing the effects that elevated oil prices would have on inflation and, in turn, the outlook for global interest rates.
The FTSE 100 index closed down 11.79 points, or 0.2% at 7,426.14 on Wednesday. The FTSE 250 ended down 39.60 points, or 0.2%, at 18,451.82. The AIM All-Share closed down 3.07 points, or 0.4%, at 736.98.
The Cboe UK 100 ended down 0.2% at 739.35, the Cboe UK 250 closed down 0.5% at 16,072.88, and the Cboe Small Companies ended down 0.2% at 12,937.26.
Over the past week, the price of a barrel of Brent oil is up nearly 6%. It has risen just under 18% over the past three months. On Tuesday, a barrel of Brent rose to over $90 for the first time in 2023.
Oil prices climbed after the Saudi Arabian energy ministry said on Tuesday that the kingdom’s production cut of 1 million barrels per day, which first took effect in July, will continue ‘for another three months until the end of December 2023’. Russia’s export cut of 300,000 barrels per day will continue for the same period.
‘Restricted oil supply leads to higher oil prices, which, in turn, can contribute to higher fuel prices for consumers and businesses, putting upward pressure on overall inflation...If rising oil prices are expected to have a sustained impact on inflation, central banks can be expected to maintain higher interest rates for longer to control soaring prices,’ explained Nigel Green, founder of financial advisory, asset management and fintech firm deVere Group.
This served to ‘undercut the more comfortable narrative that the trajectory for rates is on the way to shifting’, AJ Bell’s Russ Mould added.
Brent oil was quoted at $90.01 a barrel at the London equities close on Wednesday, down slightly from $90.31 late Tuesday.
In London, NatWest lost 0.8% as it appointed Rick Haythornthwaite as its new chair from April 15 next year, confirming a report from Sky News earlier in the day.
Haythornthwaite is the current chair of online grocer and warehouse technology firm Ocado. He was chair of British Gas-owner Centrica from 2014 to 2019 and of Network Rail from 2009 to 2012. He will replace Howard Davies as NatWest chair.
The move comes less than two months after state-supported lender replaced its chief executive amid a row over the de-banking of UK politician Nigel Farage.
In the FTSE 250, WH Smith dropped 6.5%, finishing the day as the index’s worst performing stock.
The retailer said revenue in the financial year ended August 31 increased 28% against the year prior, driven by a 42% surge in revenue for its Travel unit.
Travel revenue increased 75% in the first half of financial 2023 but slowed to a 23% rise in the second half, WH Smith. This slowdown reflected the ‘the much stronger passenger numbers in the second half of our 2022 financial year compared to the first half of 2022, which included the impact from the Omicron variant’, it explained.
Russ Mould, investment director at AJ Bell, said the sharp slowdown in the pace of sales growth for the travel arm has caused investors to worry as the first-half period a year ago was disrupted by Covid, which meant this year’s growth in the same period ‘came from a low base’.
‘The second-half period a year ago was more ’normal’ so it was harder to sustain the big year-on-year growth numbers seen in this year’s first half in the latter part of its financial year,’ Mould explained.
Elsewhere in London, Halfords added 3.1% after reporting a positive start to its financial year and upping its full-year guidance.
The motoring and cycling products retailer said total revenue in the 20 weeks to August 18 was up 14% on-year, with autocentre revenue up 35% and retail revenue increasing by 3.7%.
Looking ahead, Halfords said it expects its pretax profit to be between £48 million and £58 million for the full year. In financial 2023, the firm posted pretax profit of £43.5 million.
The stock was further boosted on Wednesday after Peel Hunter raised the firm to ’buy’ from ’add’.
On AIM, Global Invacom plunged 28% after it announced it has decided to cancel its stock listing on the AIM market in London and retain only its primary listing in Singapore.
Global Invacom said it will call a meeting of shareholders for on or around October 20 to approve its plan to delist from London, which it expects to occur on or around October 30.
The company, which was founded in 2002, has its primary listing on the Main Market of Singapore Exchange Securities Trading. It joined AIM in 2014 and currently has a market capitalisation of S$9.4 million, about £5.5 million.
Global Invacom said limited liquidity in its shares on AIM means that its price is volatile and the listing doesn’t provide access to fresh capital. This is set against the cost and management time required to maintain the listing, it added.
In European equities on Wednesday, the CAC 40 in Paris ended down 0.8%, while the DAX 40 in Frankfurt ended down 0.3%.
Stocks in New York were firmly in the red at the London equities close, with the Dow Jones Industrial Average down 0.6%, the S&P 500 index down 0.8%, and the Nasdaq Composite down 1.1%.
The US private sector growth continued to slow in August, led by the services sector, according to new purchasing managers’ index data from S&P Global on Wednesday.
The final S&P Global US composite PMI output Index posted 50.2 in August, down from 52.0 in July. Still above the 50.0 no-change mark, it shows the private sector grew in August.
The figure came below FXStreet-cited consensus of 50.4 points.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data sent a ‘hint of rising stagflation risks’, as stubborn price pressures are accompanied by a near-stalling of business activity.
‘The PMI numbers for the third quarter so far point to a faltering of economic growth after a robust second quarter, as a renewed manufacturing downturn is accompanied by a deteriorating picture in the service sector,’ he said.
Meanwhile, separate data from the Institute for Supply Management said growth quickened for the US services sector in August.
The ISM’s services PMI registered 54.5 points in August, up from 52.7 points in July. This was the eighth month of consecutive growth and came in above FXStreet-cited consensus of 52.5 points.
The dollar was little moved in the wake of the data.
The pound was quoted at $1.2500 at the London equities close on Wednesday, down from $1.2564 at the close on Tuesday. The euro stood at 1.0715, virtually unchanged against $1.0713. Against the yen, the dollar was trading at JP¥147.67, unchanged from JP¥147.66 late Tuesday.
Gold was quoted at $1,915.77 an ounce, lower against $1,926.63 at the close on Tuesday.
In Thursday’s UK corporate calendar, there are half year results from Hilton Foods, Beazley, Direct Line and Melrose Industries.
The economic calendar has EU gross domestic product data and at 1000 BST and the US weekly unemployment claims at 1330 BST.
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