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Commodity stocks weigh on FTSE, US rebounds but mood is cautious

Stock markets in Europe are mixed as we approach the close. 


Investors are still cautious about the health of the global economy, and some eurozone indices have recouped some of the ground lost yesterday. The FTSE 100 is paying the price for its overreliance on commodity-related companies. The declines in copper, palladium and platinum have hurt BHP Billiton and Glencore. The renewed weakness in the oil market has weighed on BP and Royal Dutch Shell.

It was reported that Royal Dutch Shell are contemplating making bid for Endeavor Energy, which would cost in the region of $8 billion. Endeavor have drilling rights in the Permian basin, and that is possibly the motivation for the potential takeover. The slump in the oil market has reduced the value of oil assets, and major players like Royal Dutch Shell can weather the storm better than smaller firms, so this could be an opportunistic takeover. Royal Dutch shares have been in decline since May, and if the negative move continues it might target 2,200p.

Petrofac shares are in demand after the company confirmed it is trading in line with expectations. Year-to-date, the group took on new contracts worth $5 million, and the company received $500 million from disinvestment proceeds. More non-core assets could be trimmed as the company will ‘review’ is options. The share price has been drifting lower since September, and if the bearish move continues it might target the 400p region.

John Wood Group was awarded a $66 million for services to the Sellafield site. The 10-year contract should provide some reassurances to shareholders as the group recently cautioned about volatile oil prices, and suggested that it might be harder to win contracts. The stock has dropped over 34% since October, and support might be found at 500p.

Ofgem, the energy regulator, announced plans to reduce bills by roughly £45 a year from 2021 .The organisation claimed it would ‘drive a hard bargain’ with companies that operate the infrastructure of the UK’s gas and electricity service. National Grid shares are lower on the back of the announcement.


Equity markets have bounced back today, but the upward move hasn’t been driven by anything, and that is a little worrying, as it might just be a mixture of short covering and bargain hunting. The severe sell-off that was endured yesterday is still fresh in traders’ minds, and there is a sense that dealers want to get tomorrows Fed announcement out of the way, before formulating their next move.

For a change, there was some upbeat housing data from the US. Building permits ticked up to 1.32 million in November, which topped the forecast of 1.25 million. Keep in mind, the October reading was 1.26 million. The housing starts reading was 1.25 million, which was an improvement on the 1.21 million in October. Admittedly, these figure weren’t amazing, but they are a bright spot on a largely bleak housing figures. 

Darden Restaurants posted a 4.9% increase in second-quarter revenue to $1.97 billion, but the consensus estimate was $1.98 billion. The same store sales figure ticked up by 3.5%, and the group upped its outlook for the year. The stock rallied on the announcement.

Fedex will release their latest quarterly update after the closing bell tonight. The rise of online shopping has been a major benefit to the company, and given the industry trends, they are likely to continue to do well out of the e-commerce craze. That being said, JP Morgan have cut their price target to $256, from $286.


EUR/USD is being assisted by the slide in the US dollar. The greenback is lower in advance of tomorrow’s Federal Reserve announcement, whereby we are likely to see a dovish hike. German IFO business climate index dropped to 101 in December, down from 102 in November. Today’s reading was the lowest in over two years, and it is the latest disappointing economic update from Germany – the eurozone’s largest economy.

GBP/USD has also been helped by the dip in the US dollar. Brexit uncertainty is still a factor, but given that Prime Minister May has deferred the vote on the deal until the middle of January, some of the downward pressure on sterling might be removed in the near-term.


Gold has been helped by the dip in the US dollar. The Fed’s announcement tomorrow will be closely watched, and should the US central bank take a less hawkish stance, it is likely to weaken the dollar further, and in turn prop up gold.

Oil is under pressure again as it was reported that Russia are increasing their output to 11.42 million barrels per day this month, and that would be a record, if it turns out to be true. Major oil producers can talk about coordinated production cuts all they want, but at the end of the day they usually peruse their own interests. WTI and Brent Crude have fallen to 15 month and 14 month lows respectively.  


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