Sector movers: Oil slump drags resource stocks lower

Resource stocks tumbled on Wednesday following a slump in oil prices and weak macroeconomic data from China.

The FTSE 100 ended down 1.04% or 63.86 points at 6,073.38, while the FTSE 250 finished 0.85% or 146.05 points lower at 17,058.98. Oil markets endured another bearish session with the Brent front-month futures contract falling to a fresh 11-year low as oversupply concerns continued to dominate market sentiment.

At 1633 GMT, Brent contract for February delivery was down 5.13% or $1.87 at $34.55 per barrel; the lowest on record since 30 June, 2004. Concurrently, WTI was down 4.45% or $1.60 at $34.37 per barrel.

Base metal futures also fell across the London Metal Exchange board following further declines in Asia on persistent concerns over China. Overnight, Caixin’s ‘unofficial’ China manufacturing sector purchasing managers’ index for December retreated from a reading of 48.6 for November to 48.2 in December. The median estimate from analysts was for a reading of 48.9.

Unsurprisingly, three-month delivery contracts of copper (down 0.5%), nickel (down 0.2%), lead (down 2.1%), zinc (down 1.7%) and tin (down 3.0%) headed lower prior to the LME close, but primary aluminium (up 0.4%) futures marginally rose.

It meant the biggest fallers on the FTSE 100 were from the mining and metals sector with BHP Billiton (down 4.91%), Rio Tinto (down 4.80%) and Anglo American (down 4.52%) taking a pounding. Asia-focussed Standard Chartered Bank (down 3.14%) took a hammering as well.

Furthermore, the oil price slump also ensured that four of the five biggest fallers on the FTSE 250 were resource stocks with Tullow Oil (down 7.12%), Vedanta Resources (down 5.38%), Nostrum Oil & Gas (down 5.26%) and Ophir Energy (down 5.15%) heading lower.

Connor Campbell, analyst at SpreadEx, said, “Oil price decline sent the UK oil investors rushing for the exit, Premier Oil leading the charge with a 17% (intraday) fall. In fact the entire commodity sector looked pretty dire, mining big boys Rio Tinto, Anglo American and BHP Billiton all down around 4.5-5.5%.

“Combine all that bad news and you have a pretty toxic cocktail, one that has seen the FTSE fall by over 1% to leave it firmly in two and a half week low territory.”

Among the few positives for the London market, BAE Systems jumped after RBC Capital Markets upgraded it from 'outperform' to 'top pick', and raised the target price from 570p to 630p, saying the tide has turned for US defence spending.

Royal Mail gained after Barclays upgraded the stock to ‘overweight’ from ‘equalweight’ and lifted the price target to 575p from 440p.