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London open: Stocks edge lower after weak China data; energy shares rally
London stocks edged lower in early trade on Monday as investors mulled disappointing Chinese data, but energy shares bucked the trend as oil prices surged following drone attacks on Saudi Arabian processing facilities.
At 0830 BST, the FTSE 100 was 0.2% lower at 7,353.28, while the pound was down 0.3% against the dollar and the euro at 1.2460 and 1.1253, respectively, as Prime Minister Boris Johnson was set for Brexit talks with European Commission President Jean-Claude Juncker in Luxembourg later in the day.
Meanwhile, oil prices rocketed, with West Texas Intermediate up 7% at $58.99 a barrel and Brent crude 7.5% higher at $65.10 after drone attacks on two oil processing facilities operated by state-owned Saudi Aramco over the weekend, which US President Donald Trump has blamed on Iran.
Neil Wilson, chief market analyst at Markets.com, pointed out that the attacks have disrupted half of the country’s oil output, which is equivalent to about 5% of global production. He said the spike in crude price is the largest in recent memory, with crude set for one of its biggest ever rallies.
“This is a big escalation in terms of the scale and reach of these attacks so raises prospect of ongoing disruption and raises the geopolitical danger,” he said. “It’s going to add a massive risk premium to crude prices, so it will likely materially drive prices higher for a while. The big uncertainties right now for crude are 1) the extent of the outage, 2) how does this escalate, and 3) could there be more attacks of this kind. What is certain is the genie is out of the bottle in terms of risk premium.”
Investors were also digesting some disappointing data out of China, which showed that industrial production fell to a 17-year low in August.
Industrial production growth slowed to 4.4% year-on-year in August from 4.8% in July, falling short of expectations for a 5.2% increase.
Meanwhile, retail sales growth slowed to 7.5% in August from 7.6% the month before, missing expectations of 7.9% growth.
Fixed-asset investment expanded at 5.5% last month, down from 5.7% in July and below expectations of 5.6% growth. The slowdown was driven by the private sector, where growth eased back to 4.9% from 5.4%.
In UK equity markets, oil giants BP and Shell were the standout gainers as oil prices spiked, while energy-related stocks such as Cairn Energy, Wood Group, Energean and Petrofac all rallied.
The jump in oil prices had the opposite effect on cruise operator Carnival, which was the worst performer on the FTSE 100, while British Airways parent International Consolidated Airlines also took a hit, along with Wizz Air.
Tullow Oil racked up strong gained after saying that its Joe-1 exploration well had successfully opened a new Upper Tertiary oil play in the Guyana basin.
Direct Line was in the red as it said former Royal London deputy chief executive Tim Harris had been appointed as chief financial officer effective 1 October.
Hedge fund Man Group was also weaker as it said chairman Ian Livingston will step down at the end of the year, to be succeeded by current non-executive director and former Deutsche Bank chief executive John Cryan.
