LONDON (Alliance News) - The FTSE 100 closed fractionally higher Thursday, having spent the day trading within a tight range, with oil and gas exploration and production company BG Group leading the gains as the price of oil climbed amid escalating violence in Iraq.
BG Group ended the day as the biggest riser in the blue-chip index, closing up 2.5%, benefiting from the increasing price of oil while not itself having any operations in Iraq exposed to the unrest.
Brent and West Texas Intermediate oil prices jumped sharply amid escalating violence in Iraq, where militants are fighting towards Baghdad. At the UK equity market close, Brent was trading up 1.9% at USD112.14 per barrel, while WTI was up 1.5% at USD105.96 per barrel.
A session of the Iraqi parliament called to vote on declaring a nationwide state of emergency has been adjourned due to lack of quorum, even as radical jihadists pressed ahead towards the capital of Baghdad. No date has been set for the next parliamentary meeting, independent Alsumaria TV said, a fiasco set to deepen Iraq's political and security woes.
In the latest developments, the Islamic State in Iraq and the Levant claims on Twitter that it has captured 4,500 Iraqi soldiers in Salah al-Din province, north of Baghdad. Videos posted on YouTube by apparent ISIL supporters showed a column of hundreds of unarmed men in civilian clothes being marched along a highway.
"The unrest in the country has raised fears over supply of crude from the region," said Fawad Razaqzada, a technical analyst at Forex.com. "The situation in Libya also remains out of control where many oilfields and oil export terminals remain under the occupancy of armed insurgents. Should the situation in these countries deteriorate, or worse spread to the neighbours, crude price could potentially climb further higher," he added.
The violence has not been beneficial for all oil and gas companies, however, with Afren and Gulf Keystone, both of which operate in Iraq, closing down 1.7% and 1.8%, respectively, after falling sharply Wednesday as well.
Overall, UK stocks closed mixed Thursday. The FTSE 100 closed up 0.1% at 6,843.11, the FTSE 250 closed up 0.2% at 16,125.95, and the AIM All-Share index closed down 0.5% at 795.18.
In Europe, the CAC 40 in Paris closed down 0.02%, and the DAX 30 in Frankfurt closed down 0.1%.
Meanwhile, on Wall Street, at the UK equity market close, the DJIA, S&P 500, and NASDAQ Composite were all down between 0.2% and 0.3%.
Prior to the NY open, US stock futures had been pointing to a marginally higher open, but turned negative shortly after the latest batch of US data came in below expectations.
US retail sales expanded by 0.3% in the month of May, following an upwardly revised 0.5% increase in April. Economists had been expecting sales to climb by about 0.6% in May compared with the 0.1% uptick originally reported for the previous month. Excluding car sales, retail sales were up by just 0.1% over the month, compared with a 0.4% increase in April. Ex-auto sales were originally reported as unchanged in the previous month.
Initial jobless claims, released at the same time, also disappointed, rising to 317,000 in the week ended June 6, from 313,000 in the previous week, more than the 310,000 that economists had forecast.
In the forex market, the dollar softened across the board Thursday. At the close of the UK equity market, the dollar was trading at JPY101.840, while the pound was at USD1.6848 and the euro at USD1.3551.
Mining companies Anglo American, Rio Tinto, Glencore and BHP Billiton were all amongst the heaviest blue-chip fallers Thursday, amid concerns over commodity prices and consequential share price target reductions by analysts at Morgan Stanley.
Morgan Stanley's metals and minerals commodity economist Joel Crane lowered his iron-ore price assumptions for 2014 to 2019. For the second half of the current year, the analyst cut Morgan Stanley's assumed iron ore price by more than 17% to USD95 per metric ton. For the 2015 full-year, the assumed price has been slashed by almost 24% to USD87. The long-term price for 2020 and beyond remains unchanged at USD99 per metric ton in real terms, meaning adjusted for inflation.
"The cuts reflect a faster and more pronounced mean reversion in the iron ore price in reaction to accelerating supply growth than we anticipated," Morgan Stanley said in a morning note to investors.
Morgan Stanley downgraded Anglo American to Underweight from Equal Weight, lowering its price target to 1,360.00 pence from 1,530.00p, saying that the market is too optimistic on the miner's cost reduction plans, and that its exposure to iron ore exceeds that of other miners. It also lowered BHP Billiton's price target to 2,200.00 pence from 2,140.00p, and Rio Tinto's3,430.00 pence from 3,820.00p.
Anglo American closed down 3.2%, Rio Tinto down 3.1%, BHP Billiton down 1.8%, and Glencore down 1.3%. The FTSE 350 mining sector index closed down 1.9% at a near three-month low.
The downgrade was enough to see Anglo American end the day as the biggest faller in the FTSE 100, even though FTSE 250-listed Lonmin said it had reached a tentative deal over wages and working conditions with the leadership of the union that has crippled the South African platinum mining industry for several months.
The company said the two sides have reached "informal undertakings" in principle on a potential deal. Peers Anglo American Platinum, part of Anglo American, and Impala Platinum Holding have received the same in principle undertakings, it added.
"The companies expect to receive feedback from the Association of Mineworkers and Construction Union on Friday, 13 June. Thereafter, and should an agreement be reached, the companies will be assisting employees to ensure a safe return to a normal working environment," Lonmin said.
Lonmin, which had moved lower in early trade, managed to end the day up 8.9% as the mid-cap index's biggest riser, following the announcement.
Elsewhere, ITV ended the day as one of the biggest risers in the FTSE 100, closing up 1.6%. Shares in the television company rose after trade magazine Media Week reported that US advertising and marketing agency Omnicom Group Inc has decided to halt all media spend with Channel 5 until the end of the year, redirecting advertising activity to ITV instead.
The move is reported to have been made without any discussions with Channel 5, with many in the industry suggesting that ITV is receiving the extra spend due to its relationship with Omnicom's media trading arm Opera, the magazine reported.
Opera is said to have spent more than GBP50 million on Channel 5 last year.
"ITV looks to have gained a major boost, with one of the main media buying groups reportedly stopping spending with Channel 5 in the second half of the year and shifting this money across to ITV," said Liberum Capital analyst Ian Whittaker.
Earlier in the day, Whittaker sent a research note to investors saying that the fact ITV's shares have spent June trading in tight ranges should be used as a buying opportunity. "While we like it for long-term, fundamental reasons, shorter-term advertising trends also provide a catalyst," Whittaker said. "In this context, the suggestions that advertising momentum is improving around the World Cup should help," he said.
Imperial Tobacco Group, closing up 0.9%, was another big winner. The company's shares moved higher after Reuters reported that the group is considering a deal to buy assets that are likely to be sold by US tobacco companies Reynolds American Inc and Lorillard Inc if they go ahead with a proposed merger.
AstraZeneca ended the day up 0.5%. The pharmaceuticals giant said it had signed a global licence agreement with AIM-listed biotechnology company Synairgen for its SNG001 compound for the treatment of infections that exacerbate asthma. Under the terms of the deal, AstraZeneca will pay Synairgen an up-front free of USD7.25 million, with potential milestone payments of up to USD225 million possible.
Separately, AstraZeneca and Amgen said late Wednesday that phase II study results of psoriatic arthritis drug brodalumab showed that the treatment showed significant improvement in clinical symptoms.
The results, which were published in the New England Journal of Medicine, and will be presented at the 2014 European League Against Rheumatism congress in June, also showed that many patients continued to improve and saw sustained improvements. The companies said that the encouraging data from the study was why they had opted to continue developing brodalumab as a potential treatment for psoriatic arthritis.
In the FTSE 250, Halma, closing up 4%, was one of the index's riser. The technology company upped its total dividend for the year to end-March and expressed confidence for further growth in the year ahead, as it saw pretax profit rise, boosted by strong revenue growth in the US, UK and mainland Europe.
It posted a pretax profit of GBP138.7 million, up 15% from GBP120.1 million, as it saw revenue rise 9.3% to GBP676.5 million from GBP619.2 million. It proposed a total dividend of 11.17 pence, up 7.1% from 10.43p in the previous year.
Also in the mid-cap index, Premier Farnell closed up 3.3% after it said it will restructure its business for an estimated cost of GBP8 million to secure yearly cost savings of GBP6 million to GBP8 million. It said the cost benefits will be minimal in the current financial year, with the full benefit anticipated for the 2016 financial year. The company also said it was continuing to trade in line with its forecast at the time of its interim management statement in May.
Still to come Thursday, Bank of England Governor Mark Carney and Chancellor of the Exchequer George Osborne are due to give speeches at a Mansion House dinner.
"Given recent firmer economic data, the tone of these will probably be more upbeat than in recent years," said Rhys Herbert, senior economist at Lloyds Bank. While it is unlikely that either will use the occasion to announce new initiatives, markets will be looking for any hints of possible action from the Financial Policy Committee, Herbert added.
In the data calendar on Friday, the Bank of Japan releases its latest interest rate decision and monetary policy statement at 0400 BST. Japanese industrial production and capacity utilisation data for April are released at 0530 BST, shortly before Chinese industrial production, retail sales, and urban investment data for May at 0630 BST.
German consumer price inflation figures are released at 0700 BST, with the Spanish and Italian equivalents due at 0800 BST and 0900 BST, respectively. Employment change and trade balance data for the eurozone is scheduled for 1000 BST.
In the US, producer price inflation is published at 1330 BST, with the preliminary Reuters/Michigan consumer sentiment index released at 1455 BST.
In the corporate calendar, AIM All-Share index-listed Bonmarche Holdings is due to release full-year results Friday.