London close: Stocks close lower as oil prices slide

The UK equity market closed on the back foot on Monday as oil prices continued to decline.

Oil prices took another tumble as HSBC cut its oil price forecast for the rest of the year to around $45 per barrel, compared to the $60 it had previously expected. The bank said the market was oversupplied by an estimated 2m barrels a day in 2015.

At 1638 GMT Brent crude fell 3.8% to $30.97 per barrel and West Texas Intermediate dropped 4.6% to $30.76 per barrel.

Adding to the pain, Saudi Aramco chief Khalid al-Fatih said Saudi Arabia could sustain low prices for "a long, long time," Bloomberg reported.

Figures showing a 5.6% drop in Chinese diesel use in December and gasoline use at its lowest in two years were seen by some as adding to Monday´s decline in prices.

“As it is we’ve probably seen one of the worst ever starts to a trading year, driven primarily by concerns around plunging oil prices, disappointing earnings, and slowing global growth, particularly in China and emerging markets,” said Michael Hewson, chief market analyst at CMC Markets.

“With oil prices also slipping to 13-year lows the correlation between the two has been the primary driver for some weeks now, with quite a bit of evidence that oil prices were at peak bearishness, as forward predictions for oil prices got steadily revised lower, on a daily basis.”

Meanwhile, there were very few economic data releases apart from the CBI industrial trends survey, the Ifo’s German business confidence report and the Dallas Fed manufacturing activity index.

The index for total orders in January came in at -15 compared to analysts’ expectations of -10 and the previous month’s -7, according to CBI’s industrial trends survery. Nevertheless, the balance of manufacturers expecting to increase output over the next three months improved to a five-month high of +14% in January from -5% in December.

“Manufacturers have seen a flat start to 2016 but while we have seen real problems in some industries in the last few months, there are signs that orders and production are stabilising overall,” said Rain Newton-Smith, CBI director of economics.

The German Ifo survey for January came in weaker than expected. The business climate index fell to 107.3 from 108.6 the previous month and below the 108.4 reading expected by economists. The current assessment and expectations indexes also undershot estimates, at 112.5 and 102.4, respectively. Economists had been expecting readings of 112.8 and 104.1.

The Dallas Federal Reserve’s report revealed that general business activity and company outlook indexes came in at their lowest readings since April 2009. The Dallas Fed's general business activity index in January fell 13 points to -34.6, and its company outlook index slipped to -19.5.

Looking ahead, the attention will be on the Federal Reserve’s interest rate announcement on Wednesday and the Bank of Japans’ policy decision on Friday.

Analysts expect the Fed will keep interest rates unchanged after last month’s first hike in more than a decade by 25 basis points to 0.50%.

“While the Fed is expected to maintain status quo, the accompanying statement is going to be the centre of attention, especially given the recent slide of oil prices below $30 and the renewed Chinese sell-off,” said Brenda Kelly, head analyst at London Capital Group.

“The global macroeconomic conditions may not be appropriate for the Fed to hike 3-4 times this year as scheduled.”

Bank of Japan Governor Haruhiko Kuroda raised hopes of further stimulus on Saturday at Davos after saying the central bank “won’t hesitate adjusting policy, including easing policy, if necessary to achieve our 2% price target”.

Rabobank said while Haruhiko’s remarks were dovish, the BoJ is in the habit of reiterating that the BoJ ”won’t hesitate”.

“This phrase was used by Kuroda last May, September and November although the BoJ has not made any significant adjustment to its QQE programme since October 2014,” analysts at the financial services group said in a note.

In company news, Kingfisher slumped as it said profits would take a £50m hit in the first year of its five-year transformation programme.

Bankers were also among the biggest fallers after Sky News on Saturday reported they are preparing to set aside billions of more pounds for provisions against the payment protection insurance mis-selling scandal. Insiders from Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander UK told the broadcaster that banks would reveal at least £5bn in fresh provisions alongside their full-year 2015 earnings.

Lloyds was also weighed down by a price target cut by JP Morgan from 98p to 90p.

Tesco also took a hit after Cantor Fitzgerald analyst Mike Dennis said he believed the supermarket may get slapped with a fine of up to £500m by the Serious Fraud Office over its £326m accounting black hole.

Going the other way, Unilever gained after the consumer goods company said it will not scale back its UK operations if Britain votes to leave the EU.

Ophir Energy jumped after signing a non-binding head of terms agreement with Schlumberger, which will receive a 40% interest in the company’s Fortuna project in Equatorial Guinea.

Imagination Technologies was a high riser after saying it is reviewing strategic options for its audio products division Pure.

Market Movers

FTSE 100 (UKX) 5,877.00 -0.39%
FTSE 250 (MCX) 16,146.98 0.12%
techMARK (TASX) 3,119.24 0.56%

FTSE 100 - Risers

Glencore (GLEN) 80.70p 2.70%
Sage Group (SGE) 568.50p 2.52%
Berkeley Group Holdings (The) (BKG) 3,544.00p 2.28%
Persimmon (PSN) 1,948.00p 1.94%
AstraZeneca (AZN) 4,440.50p 1.83%
Reckitt Benckiser Group (RB.) 6,144.00p 1.60%
ARM Holdings (ARM) 1,010.00p 1.46%
Taylor Wimpey (TW.) 183.70p 1.21%
Unilever (ULVR) 2,950.50p 1.08%
Admiral Group (ADM) 1,694.00p 1.07%

FTSE 100 - Fallers

Kingfisher (KGF) 323.90p -6.12%
Lloyds Banking Group (LLOY) 63.14p -5.56%
Barclays (BARC) 181.85p -4.67%
Royal Bank of Scotland Group (RBS) 251.40p -4.08%
BT Group (BT.A) 471.00p -3.34%
Tesco (TSCO) 155.55p -3.11%
Aberdeen Asset Management (ADN) 225.60p -2.80%
Rio Tinto (RIO) 1,609.00p -2.69%
GKN (GKN) 285.00p -2.66%
Antofagasta (ANTO) 362.40p -2.63%

FTSE 250 - Risers

Allied Minds (ALM) 286.60p 6.94%
Ted Baker (TED) 2,804.00p 6.21%
Zoopla Property Group (WI) (ZPLA) 213.30p 4.82%
Genus (GNS) 1,433.00p 4.75%
Ophir Energy (OPHR) 88.00p 4.58%
Telecom Plus (TEP) 968.50p 4.36%
Betfair Group (BET) 4,038.00p 3.80%
OneSavings Bank (OSB) 314.10p 3.80%
Pets at Home Group (PETS) 264.60p 3.36%
Redrow (RDW) 427.80p 3.36%

FTSE 250 - Fallers

IMI (IMI) 765.00p -5.73%
Tullow Oil (TLW) 140.30p -5.07%
Weir Group (WEIR) 845.00p -4.63%
Amec Foster Wheeler (AMFW) 381.20p -4.34%
Spectris (SXS) 1,554.00p -4.25%
Brown (N.) Group (BWNG) 298.80p -3.05%
Aggreko (AGK) 796.00p -2.99%
Petrofac Ltd. (PFC) 718.00p -2.84%
Rotork (ROR) 165.60p -2.59%
Carillion (CLLN) 272.10p -2.51%