Leading shares suffered their biggest one day fall since the middle of October as energy companies fell sharply despite a mini-revival in the oil price.
Brent crude edged up more than $1 a barrel to $71.27 but the recent plunge to five year lows in the wake of last week’s Opec decision not to cut production was still doing damage.
Tullow Oil fell 25.5p to 400.5p, not helped by Citigroup moving from 935p to 567p with a neutral rating and JP Morgan slashing its target price from 1000p to 495p. JP Morgan also downgraded other oil companies including cutting Afren, down 6.09p to 45.66p, from overweight to underweight.
The bank said the collapse in the oil price comes at a difficult time for the sector, with stretched balance sheets and projects which were being developed on the basis of $100 a barrel.
Disappointing manufacturing data, especially from China and the eurozone, also dented investor sentiment.
So the FTSE 100 finished 66.25 points lower at 6636.37, with European markets also slipping back and Wall Street down 50 points by the time London closed.
The falls in London were more significant, given the number of resource companies listed in the UK. So the weak Chinese figures left BHP Billiton 33p lower at £14.48 and Anglo American down 17.5p to £13.04. David Madden, market analyst at IG, said:
In London, the FTSE 100 is paying the price for its relatively high proportion of natural resource stocks. Despite the turnaround in the underlying commodities themselves, the mineral-exposed companies are the biggest losers today.
These challenging times for commodity companies will see a shakeup in the sector; extractions costs are high and markets prices are low, which spells trouble for the industry. I foresee profit warnings for the small oil explorers, and miners will be forced to rethink some of their more ambitious projects. European equities are relatively shielded from major moves in the commodities market but traders don’t want to be short going into the ECB’s meeting on Thursday, for fear of yet another QE clue being dropped from Mario Draghi.
Aberdeen Asset Management bucked the trend, up 7.6p at 457.5p, after better than expected full year profits of £490m, up 2%. It reported an improvement in business after recent weakness in emerging markets, and held out the prospect of a share buyback.
Elsewhere IMI, down 24p at £11.57, and Petrofac, 17p lower at 808p, are set to leave the FTSE 100 and be demoted to the mid-cap FTSE 250. The latest index changes will be decided on Tuesday’s closing share prices and as things stand the two will both be replaced by housebuilders. Barratt Developments, up 0.1p at 460.4p, and Taylor Wimpey, off 0.2p at 134p, are currently set to be promoted to the leading index.
Balfour Beatty jumped 7.8p to 191.1p on hopes of an auction for its public private partnership assets after John Laing Infrastructure Fund, down 3.2p at 120.1p, made a £1bn offer.
But Kier closed down 18p at £13.93 after confirming speculation it had held preliminary talks about buying Mouchel, the infrastructure group which has been in the hands of its banks since a black hole was discovered in its accounts in 2012.
Bookmakers moved higher after a report from the Responsible Gambling Trust suggested no immediate policy action and did not recommend slashing maximum stakes on gaming machines. William Hill rose 12.2p to 347.2p and Ladbrokes 1.2p to 112.5p.
Dixons Carphone added 5.2p to 428.5p on talk of a successful Black Friday, while Sports Direct International was 10.5p higher at 671p for a similar reason.
Lower down the market Wolf Minerals, which is developing a tungsten mine in Devon, was steady at 14.75p. Wolf has completed a six hole drilling campaign at the mine - the first new metal mine in the UK for more than 40 years - and the results indicate that an additional 4-6m tonnes of tungsten ore may be available, increasing reserves by 15%-23% through steepening pit walls and expanding the perimeter within existing planning permission.
The company says it is fully funded through to positive cashflow, and hopes to begin production in the third quarter of next year, with possible divend payments to shareholders following a year later.
