London open: China data and oil price spill unnerve traders

Shares have started lower in London on Thursday morning with traders trying to anticipate whether the gears of monetary policy at the European Central Bank had begun to shift, mimicking the recent apparent change of pace over at America´s Federal Reserve.

The answer to that query - coming amid a large drop in oil futures overnight and a surprise reading on Chinese CPI - might have significant implications for all asset classes, such as gilts, FX, or commodities, especially in the very short-term, according to multiple analysts and strategists.

Against that backdrop, as of 0804 GMT the FTSE 100 was down 0.54% or 39.52 points to 7,295.09, while the FTSE 250 was slipping 0.32% or 61.39 points to 18,869.68. In parallel, cable was 0.3% lower to $1.2163.

After a large overnight spill in crude oil futures, front month West Texas Intermediate crude oil futures were bouncing back by 0.77% to $50.67 a barrel.

Crude prices had fallen by 5% in US trading hours, which unnerved some traders, especially as these falls were followed by another economic surprise out of China on Thursday morning.

"Calls for another negative open come after more losses on Wall St and a mixed bag in Asia overnight. A sharp 5% drop in oil prices following more big US inventory builds has weighed heavily on Energy which don’t forget makes up over 13% of the UK’s FTSE index (BP, RDSb), before we even consider the read-across to support/engineering names and the sentiment hit to the Miners," said Mike van Dulken, head of research at Accendo Markets.

China data surprise

The cost of living in China fell sharply in February with the headline consumer price index dropping from a 32-month high of 2.5% year-on-year in January to 0.8% (consensus: 1.7%).

Hence, if the People's Bank of China tightened monetary policy in 2017 it was unlikely to be as a result of heightened inflationary pressures, said Julian Evans-Pritchard at Capital Economics, but rather financial stability concerns.

Nonetheless, the day´s main event would be the ECB's policy meeting and follow-up press conference from its chief Mario Draghi.

Although no major policy changes were anticipated, traders were well aware of Mario Draghi's propensity for often surprising markets in one manner or another.

Said economists at JCRA: "Draghi has a major problem, as the ECB will be announcing new inflation forecasts this week and the 1.3% forecast made in December now looks absurd.

They suggested Draghi may take a leaf out of Mark Carney’s book and go for a ‘look through’ solution, even though a Germany buoyed by the increase in its industrial production figures will be looking for a reversal in tone.

House prices in the UK held up better than expected in February, with the Royal Institute of Chartered Surveyors's price gauge printing at +24 for February, down from a preliminary reading of +25 for January but ahead of the +23 forecast by economists.

BHP Billiton, CRH, Hargreaves Lansdown, Land Securities Group, Persimmon and Shire are among those to have gone ex-dividend on Thursday.

As always, the latest weekly initial unemployment claims figures scheduled for release at 1330 GMT held the potential to move markets, as the timeliest (and quite reliable) guide to the US jobs market.

A meeting of EU minister later in the day might also provide some interesting soundbites, what with the start of the brexit process looming ever closer, Van Dulken added.

Adapt to survive

In terms of some of the earliest recommendation changes out of the brokers, Berenberg told clients SuperGroup was mis-priced and "undervalued".

On the other hand, the German broker saw further possible downside for the likes of Debenhams, H&M and Marks & Spencer, "which lack differentiation and have failed to adapt. In the near term, they each face significant FX headwinds."

Tills overflowing at Morrisons

Helped by a strong fourth quarter, Morrisons grew annual like-for-like sales and underlying profits before tax for the first time in five years and declared a 3.85p final dividend to celebrate. LFL sales jumped 2.5% in the three months to 29 January, lifting the year's total to 1.7% and turnover up 1.2% to £16.3bn. Shares in the grocer dropped, however.

Aviva was the top riser on the Footsie as the insurer said it was making a £380m charge to account for the change in the Ogden rate – the discount on personal injury claim payouts – as it revealed full year operating profits up 12% to £3bn.“Fund management delivered a breakout year with strong positive net flows and operating profit up 30%. General insurance is growing, with operating profit up 17%1, and in UK Digital we have doubled online registrations to five million. We are becoming a digital disruptor for the benefit of our customers,” the company said.The total dividend is up 12% to 23.3p.

Oil giant Royal Dutch Shell is to sell all of its oil sands interests in Canada and reduce its share in the Athabasca oil sands project to 10% from 60% for $7.25bn.Shell will remain the operator of Athabasca’s Scotford upgrader and the Quest carbon capture and storage project. It's shares were down, however, on crude prices.

BT Group announced on Thursday that Jan du Plessis would succeed Sir Mike Rake as chairman.The FTSE 100 firm said du Plessis would join the board as a non-executive director from 1 June, and become chairman with effect from 1 November when Rake was retiring from BT, following 10 years as chairman.Du Plessis has been chairman of Rio Tinto since 2009, a role he was retiring from no later than the 2018 annual general meeting.

Market Movers

FTSE 100 (UKX) 7,290.47 -0.60%
FTSE 250 (MCX) 18,871.40 -0.32%
techMARK (TASX) 3,430.84 -0.34%

FTSE 100 - Risers

Aviva (AV.) 541.00p 5.87%
Admiral Group (ADM) 1,888.00p 3.23%
Croda International (CRDA) 3,665.00p 1.66%
International Consolidated Airlines Group SA (CDI) (IAG) 556.00p 1.46%
Legal & General Group (LGEN) 251.00p 0.88%
easyJet (EZJ) 947.00p 0.74%
Dixons Carphone (DC.) 304.70p 0.69%
ITV (ITV) 207.40p 0.68%
Next (NXT) 3,979.00p 0.53%
British Land Company (BLND) 619.00p 0.41%

FTSE 100 - Fallers

Morrison (Wm) Supermarkets (MRW) 234.00p -5.26%
BHP Billiton (BLT) 1,273.00p -4.00%
Anglo American (AAL) 1,170.50p -2.82%
Glencore (GLEN) 311.10p -2.37%
Sainsbury (J) (SBRY) 260.90p -1.92%
Fresnillo (FRES) 1,353.00p -1.74%
Rio Tinto (RIO) 3,207.00p -1.66%
Ashtead Group (AHT) 1,666.00p -1.65%
Tesco (TSCO) 185.45p -1.62%
Antofagasta (ANTO) 766.50p -1.54%

FTSE 250 - Risers

Dignity (DTY) 2,385.00p 3.88%
Cobham (COB) 130.50p 2.68%
Just Eat (JE.) 575.00p 2.13%
Hastings Group Holdings (HSTG) 245.20p 1.83%
G4S (GFS) 293.40p 1.59%
Rotork (ROR) 258.00p 1.34%
Hill & Smith Holdings (HILS) 1,263.00p 1.20%
Fisher (James) & Sons (FSJ) 1,609.00p 1.07%
TalkTalk Telecom Group (TALK) 173.80p 1.05%
Cairn Energy (CNE) 220.50p 1.01%

FTSE 250 - Fallers

Domino's Pizza Group (DOM) 347.90p -11.70%
Jupiter Fund Management (JUP) 407.90p -4.54%
Kaz Minerals (KAZ) 467.20p -4.11%
Tullow Oil (TLW) 252.40p -3.85%
Vedanta Resources (VED) 819.00p -3.02%
Ferrexpo (FXPO) 147.10p -2.97%
Petra Diamonds Ltd.(DI) (PDL) 138.90p -2.32%
Evraz (EVR) 219.20p -2.06%
Weir Group (WEIR) 1,875.00p -1.83%
Hunting (HTG) 544.00p -1.72%