News Column

MARKET COMMENT: Miners, Drillers And Airlines Weigh On FTSE Indices

June 12, 2014

Jon Darby

LONDON (Alliance News) - UK stock indices are trading mixed Thursday, with the mining stocks underperfoming and the price of oil rising, as investors continue to react to the lower global growth forecast from the World Bank and the deteriorating situation in Iraq.

By mid-morning Thursday the FTSE 100 is broadly flat at 6,841.00, and the FTSE 250 is fractionally lower at 16,084.15. The AIM All-Share is underperforming, down 0.6% at 794.95.

Major European markets are performing slightly better, with the French CAC 40 up 0.2% and the German DAX up 0.1%.

"The World Bank’s decision to cut its 2014 growth target is a clear warning to those that thought the first-quarter US GDP blip would have few ramifications on the rest of the global economy," said IG market analyst David Madden. "Although the bank still expects a rebound later this year, the news has been taken as a cue to sell FTSE mining stocks once again, pushing the sector to three-month lows."

The FTSE 350 Mining sector is down 2.3%, and Anglo American is leading FTSE 100 fallers, down 3.8%. Lonmin leads the fallers in the FTSE 250, down 3.2%, after having its price target revised slightly lower by Goldman Sachs.

Also in the FTSE 250, oil and gas explorer Afren is down 3.1%. Afren has operations in the Kurdish-run provinces of Iraq, from where news flow has been unhelpful in recent days. The latest updates from state-run media in Iraq is that the army has retaken full control of the central city of Tikrit, a day after militant jihadists seized it.

Meanwhile, another major operator in the region, Gulf Keystone Petroleum, is down 6.3% Thursday morning and down 15% since Tuesday's close.

The price of Brent Crude Oil has risen to more than a three-month high of USD111.40 per barrel Thursday on the back of supply concerns and uncertainty in Iraq.

The rise of the oil price is compounding problems for airline stocks, which are under pressure again after Irish airline Aer Lingus became the second European airline in two days to issue a profit warning, with the country's flag carrier blaming the threat of further strike action by cabin crew for hitting bookings.

Airline stocks across Europe fell sharply Wednesday after German flag carrier Deutsche Lufthansa AG reduced its profit expectations for this year and next, warning that it was having to reduce prices on European and US routes due to weak demand, and it also has been hit by a recent pilots strike.

Aer Linus shares are down 3.0%. International Consolidated Airlines is down 2.0%, and easyJet is down 1.4%.

European industrial production expanded at a faster rate than expected in April. Production across the single currency block rose by 0.8% month-on-month, reversing the 0.4% decline recorded in March and exceeding economists expectations for a rise of 0.4%. On an annual basis, industrial production rose by 1.4%, also faster than the 0.9% rise that had been expected.

Other less encouraging eurozone data from the morning, however, has shown that French consumer prices remained flat in May, and Greek unemployment crept fractionally higher, to an eye watering 27.8%.

There is no UK data in the calendar Thursday, leaving the focus on US retail sales data still to come at 1330 BST, and the subsequent open of US trading. Analysts are expecting US retail sales to have grown by 0.6% in May, after expanding at just 0.1% in April.

Ahead of the data, futures markets indicate that US stocks will open fractionally higher, with the DJIA and the S&P 500 both pointing up about 0.1.

After the market close on Thursday, Bank of England Governor Mark Carney and Chancellor of the Exchequer George Osborne are due to speak at a Mansion House dinner. While the focus of the speech is expected to be new legislation to punish rouge trading, investors will also be watching to find out if it is possible to have dinner in London without talking about house prices, after a survey released overnight showed prices rising faster than expected in May.

The Royal Institute of Chartered Surveyors house price balance ticked higher to +57 last month, up from +55 recorded in April.

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Source: Alliance News