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Slide in energy prices weighs on the FTSE100

oil platform

It’s been another choppy session for markets in Europe today after another set of disappointing Chinese economic data, which has prompted a sharp slide in commodity prices.


Fears over a prolonged slowdown has seen oil prices slide to their lowest levels since February, as well as acting as a drag on UK natural gas prices, which have slipped to their lowest levels since the end of July.

This has weighed on the basic resources and energy sector over recession concerns, pulling the FTSE100 sharply lower, though the rest of Europe’s markets have been slightly more resilient.

We’ve also seen weakness in consumer retail after a broker downgrade from Jefferies on concerns over the potential negative impact of higher energy prices on consumer spending over the next two years. The broker specifically mentioned Associated British Foods, Kingfisher, Sainsbury, Tesco and B&M, with Next also falling sharply.

At the risk of stating the obvious there is a case for arguing that a lot of this negativity is already in the price for a lot of these retailers, given that ABF’s share price was already at 9-year lows, and the entire sector is already down sharply year to date. 

The best performers have been SSE and Centrica after new UK PM Liz Truss ruled out the prospect of a windfall tax on energy producers at a time when some of them are struggling to cope with the increased collateral requirements involved in hedging their energy exposure. 

Despite the grinding negativity around the housing sector this year, UK housebuilders have continued to show resilience when it comes to sales and profits. Today’s full year numbers from Barratt Developments have served to reinforce the disconnect between the share price performance this year and the actual numbers. Total completions rose 3.9% to 17,908, while revenues rose 9.5% to £5.27bn.

While revenues have increased, due to higher selling prices, so have costs, which has impacted on profits with statutory operating margins slipping back from 16.9% to 12.3%, which has translated into a decline in profits before tax of nearly 21% to £642.3m. 

Over the next 12 months Barratt has said it is targeting an increase of between 3% to 5% to around 18,600 completions. Total forward sales for 2023 are currently at 14,058, with a total value of £3.8bn, while total private completions are at 55%.

The company also announced a £200m share buyback program and a final dividend of 25.7p bringing the total dividend for the full year to 36.9p.


Today’s disappointing Chinese trade numbers gave markets a predominantly risk off start to the day, as US markets opened lower, however declines in yields alongside weakness in oil prices is helping to lift them off their lows of the day.  

Pinterest shares have moved higher on the back of a broker upgrade citing a number of positive catalysts including the potential for improvement for user growth.

Apple shares are treading water ahead of today’s expected launch of the iPhone 14 which is expected to see a new chip set as well as a new camera. We could also see the launch of a new Watch and a new iPad.

GameStop shares are also in focus ahead of their latest Q2 earnings with expectations for another big loss.


The US dollar has continued to push higher against the Japanese yen, now above 144 and another 24-year high. We’re continuing to see speculation that the Bank of Japan might intervene to stop the decline in the yen however this seems unlikely given that their current monetary policy stance is the facilitator of this decline.

The pound has slipped back to its lowest levels since 1985 after Bank of England chief economist Huw Pill said that the freezing of energy bills could take some of the sting out of current levels of inflation, implying it might temper the Bank of England’s reaction function when it comes to raising rates next week.

His comment to the Treasury Select Committee prompted UK gilt yields to drop sharply as markets started to take off some of the more aggressive rate hike bets for next week, shrinking market pricing of a 75bps rate hike back towards the prospect of a 50bps move. With headline CPI currently at 10.1% these remarks come across as remarkably complacent, especially with headline PPI, which tends to be a leading indicator, trending at a much higher level.

Even with the prospect of a large-scale fiscal response taking some of the heat out of the worst-case scenario short term inflation outlooks, inflation is unlikely to come down quickly, especially with the pound at these sorts of levels against the US dollar. Today’s tone from the various MPC members contrasts starkly with the Fed’s hawkishness and messaging, along with their determination to hike rates until inflation is falling at a sustainable pace.

It may be that having been burned on its guidance on previous occasions, it doesn’t want to be a hostage to fortune, but with inflation at already 5 times above the bank’s inflation target, a little bit of hawkishness wouldn’t go amiss. Is it any wonder politicians talk about looking to review the banks mandate when its members come out with banalities of this kind?  

Another 75bps rate hike from the Bank of Canada, has done little to lift the Canadian dollar away from its lowest levels since November 2020, despite the pledge that more hikes are likely to follow, as the US dollar continues to sweep all before it.      


Brent crude prices have continued to struggle, touching their lowest levels in over 6 months on concerns over falling demand. China’s disappointing trade numbers, along with the prospect of a European recession are outweighing the recent OPEC+ output cut and will probably give cause for concern to these oil producers if prices continue to fall. US oil prices have slipped back to their lowest levels since January, below $85 a barrel.

While the US dollar has continued to push to new highs against the likes of the Japanese yen and the pound, gold prices have managed to pull back above $1,700 an ounce helped by a decline in US yields.     


Pressure on resource stocks combined with expectations that the Bank of Canada may serve up a significant rate hike later today proved sufficient to rattle sentiment on the Toronto Stock Exchange and leave the benchmark index posting its lowest close in around six weeks last night. That in turn left the instrument as the most active of the indices during Tuesday’s session, with daily vol coming in at 25.59% against a monthly print of 18.6%.

The story also proved to be a similar one south of the border where traders returned after the Labour Day holiday to yet more upbeat economic news. This is fuelling speculation that the Fed will continue its aggressive policy tightening campaign, knocking back equities in the process. The DOW printed daily vol of 21.05% against 15.78% for the month as a result.

Rough Rice prices retreated sharply yesterday, declining around 4% and working their way back to levels not seen for almost three weeks. There have been concern that harvests out of Pakistan would be hit as a result of extreme flooding and also China given the prolonged drought, but monsoons are lifting expectations of Indian yields for the season. Daily vol printed 79.1% against 50.82% on the month.

Litecoin topped the board again in terms of digital assets with the crypto giving back recent gains. A risk off mindset in Europe may be playing a part here but daily vol came in at 84.53% against 67% on the month, whilst for fiat currencies, it was Euro-Sterling that topped the board. Expectations over the ECB’s next move on rates combined with the market absorbing the scale of the UK government intervention in managing gas prices took a toll here, with the cross reversing from one-week lows. Daily vol sat at 8.49%, up from 6.67% on the month.

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