London close: Stocks close lower on oil price slump, China worries

Oil prices were under pressure still as analysts lowered their forecasts amid concerns about an oversupply and tensions in the Middle East.

At 1613 GMT, Brent crude plunged 4.2% to $32.18 per barrel and West Texas Intermediate dropped 3.7% to $31.95 per barrel, the first time it’s traded below $32 since 2003.

Morgan Stanley warned that if rapid currency devaluation occurs, a 15% depreciation in the Chinese yuan alone could send oil into the $20s.

“Oil is particularly levered to the US dollar with betas ranging from 2-5. If the USD appreciated 5%, oil could fall 10-25%,” the broker added.

Analysts at SocGen said oil prices would be significantly lower than previously expected in 2016 after the Organisation of the Petroleum Exporting Countries eliminated its production target.

SocGen lowered the 2016 forecast for the price of front month Brent oil futures from $53.75 per barrel to $42.50 and West Texas Intermediate futures from $49.75 to $40.50 per barrel.

Elsewhere, Chinese stocks declined as fears about the flagging economy persisted. Data over the weekend showed China’s inflation rose to 1.6% year-on-year, as expected, compared with 1.5% the previous month. However, the producer price was unchanged at minus 5.9% in December, according to the National Bureau of Statistics.

The People’s Bank of China on Monday set the yuan's reference rate against the dollar at 6.5626, up on Friday's fixing of 6.5636, but it did little to cheer the market.

“While China’s yuan currency was fixed slightly firmer, note Saturday’s Chinese inflation data which saw consumer price inflation edge up as expected to 1.6% but producer prices remain under pressure and fail to deliver the uptick expected by consensus,” according to Mike van Dulken and Augustin Eden at Accendo Markets.

“This data will only add to hopes of more intervention by the PBoC to both buoy the equity markets as well as the flagging growth that is concerning investors worldwide."

In economic data, Sentix revealed economic sentiment in the Eurozone worsened more than expected in January. The index gauging economic confidence among investors slid to 9.6 from 15.7 in December, missing expectations for a reading of 12.2.

“Fears over China’s devaluation—as an omen of a hard landing in the economy—and increased global deflation risks likely will linger in the short run,” said Pantheon Macroeconomics. “But we think both equities and sentiment will recover in coming months, as the continuation of QE and a stable cyclical recovery remains important tailwinds.”

The Conference Board’s US labour market conditions index rose to 2.9 in December from 2.7 in November, beating forecasts for a reading of 0.4.

In company news, BAE Systems gained after JP Morgan Cazenove said it believed 2016 will be a big year for defence stocks and upgraded the stock from ‘neutral’ to ‘overweight’.

Savills jumped after the real estate firm said underlying full year results will be ahead of previous expectations boosted by its investment management business although it warned that global economic uncertainty and rising interest rates would result in a “tempering” of transaction volumes.

Sports Direct continued to fall after warning on Friday that annual profits would be £40m lower than expected following poor Christmas sales.

Anglo American rallied on news it is poised to begin the sale of its Brazilian niobium and phosphate business.

Sage edged higher after Bank of America Merrill Lynch upgraded the stock to ‘buy’ from ‘underperform’ and lifted the price target to 660p from 400p.

Shire slumped after the London-listed pharmaceuticals company announced the purchase of US-based Baxalta for $32bn, provoking a mixed reaction from traders.

Market Movers

FTSE 100 (UKX) 5,871.83 -0.69%
FTSE 250 (MCX) 16,689.30 -0.26%
techMARK (TASX) 3,126.62 -1.14%

FTSE 100 - Risers

Whitbread (WTB) 4,211.00p 2.21%
Sage Group (SGE) 588.00p 1.82%
Carnival (CCL) 3,837.00p 1.70%
BAE Systems (BA.) 526.50p 1.35%
Intertek Group (ITRK) 2,689.00p 1.17%
Berkeley Group Holdings (The) (BKG) 3,538.00p 1.11%
ARM Holdings (ARM) 953.00p 1.01%
Compass Group (CPG) 1,133.00p 0.98%
Worldpay Group (WI) (WPG) 310.40p 0.78%
Provident Financial (PFG) 3,200.00p 0.69%

FTSE 100 - Fallers

Shire Plc (SHP) 3,925.00p -8.23%
Sports Direct International (SPD) 403.00p -6.99%
Glencore (GLEN) 73.43p -5.23%
Antofagasta (ANTO) 387.70p -2.66%
BHP Billiton (BLT) 636.10p -2.45%
BG Group (BG.) 917.70p -2.37%
Rio Tinto (RIO) 1,700.00p -2.24%
Hargreaves Lansdown (HL.) 1,349.00p -2.03%
AstraZeneca (AZN) 4,261.00p -2.02%
Marks & Spencer Group (MKS) 422.80p -1.83%

FTSE 250 - Risers

Laird (LRD) 363.50p 10.49%
Home Retail Group (HOME) 146.20p 6.02%
Jimmy Choo (CHOO) 123.80p 5.72%
Savills (SVS) 878.00p 3.91%
Moneysupermarket.com Group (MONY) 377.50p 3.57%
Rathbone Brothers (RAT) 2,349.00p 2.35%
Howden Joinery Group (HWDN) 511.00p 2.10%
Computacenter (CCC) 877.00p 1.98%
Ibstock (IBST) 221.10p 1.84%
Assura (AGR) 55.60p 1.83%

FTSE 250 - Fallers

Vedanta Resources (VED) 207.60p -8.34%
Cable & Wireless Communications (CWC) 69.50p -6.21%
Ocado Group (OCDO) 276.80p -6.17%
Hays (HAS) 129.80p -4.91%
Big Yellow Group (BYG) 766.50p -4.90%
Tullow Oil (TLW) 132.70p -4.46%
TalkTalk Telecom Group (TALK) 201.60p -3.77%
Ted Baker (TED) 2,763.00p -3.73%
Brown (N.) Group (BWNG) 283.00p -3.38%
Victrex plc (VCT) 1,582.00p -3.12%