8th Dec 2015 17:02
LONDON (Alliance News) - The FTSE 100 index of London blue-chip stocks slumped to its fourth consecutive session in the red on Tuesday pinned down by the heavy losses in the mining sector, while oil prices rebounded from near seven-year lows.
Anglo American was the focus of attention in the mining sector, after unveiling a "radical" restructuring of its portfolio of business and suspending its dividend payments.
The FTSE 100 closed down 1.4% at 6,135.22, the FTSE 250 down 1.0% at 17,191.90, and the AIM All-Share down 0.7% at 736.40. European stocks also incurred heavy losses, with the CAC 40 index in Paris ending down 1.6% and the DAX 30 in Frankfurt down 2.0%.
On Wall Street at the London close, the Dow Jones Industrial Average was down 0.6%, the S&P 500 index down 0.5% and the Nasdaq Composite down 0.1%.
London's FTSE 350 mining sector index fell to its lowest level since August 2004 and ended the day down 7.1%, making it by far the worst performing sector. The reason for the slump was partially Anglo's announcement and partially lower commodity prices, with Fawad Razaqzada, technical analyst at FOREX.com pointing out that the price of iron ore has fallen to its lowest since 2005.
"Commodities are generally falling mainly because of excessive supply and concerns about future demand as China's economy slows down," Razaqzada said.
Data earlier in the day showed China's exports declined for the fifth straight month on weak global demand, while imports dropped by less than expected in November.
Exports decreased 6.8% in November from last year, the General Administration of Customs reported. Shipments were forecast to drop at a slightly slower pace of 5% after falling 6.9% in October. At the same time, imports slid 8.7% annually, but fared better than an expected decline of 11.6% and an 18.8% fall seen in October.
FTSE 100 miners were heaviest hit and dominated the fallers list in the index. Antofagasta dropped 7.1%, Glencore 6.3%, BHP Billiton 5.0%, and Rio Tinto 4.8%.
However, Anglo American was the worst performing large-cap stock of the day by some distance, down 11% at 327.30 pence, having reached an all-time low of 322.65p earlier in the session.
The Anglo-South African miner outlined a "radical" portfolio restructuring and plans to cut costs further by suspending its dividend and cutting expenditure as it tries to adjust the business to be more competitive in an environment of falling commodity prices.
Anglo said it was setting out an "accelerated and more radical restructuring programme to redefine the focus of its asset portfolio to transform the company's competitive position and create a more resilient business to deliver sustainable shareholder returns."
Most arresting was Anglo's plan to reduce its assets by 60%, halving the number of business units it has and leading to significant job losses across the board. The miner will then focus on its best assets, consolidating its units to three from six. The new divisions will focus on its diamond unit De Beers, Industrial Metals and Bulk Commodities.
Anglo American also will suspend its dividend for the second half of 2015 and for 2016. Once the dividend resumes, it plans to change its policy so it is more in line with earnings.
Like its peers, Anglo American is struggling to deal with falling commodity prices, leading the sector to focus on profitable commodities and improve returns by increasing efficiencies, reducing costs and selling off assets to strengthen ever-weakening balance sheets.
Anglo American becomes the second London-listed mining-major to suspend its dividend in 2015, joining Glencore which did so back in September for similar reasons. However, the market now will watch rivals such as BHP Billiton and Rio Tinto to see if they follow suit.
Meanwhile, oil prices crashed to new nearly seven year lows Tuesday afternoon. Brent oil fell below USD40 a barrel for the first time since February 2009, to a low of USD39.80 a barrel. West Texas Intermediate fell to its lowest price since February 2009 at USD36.61 a barrel.
"Even though most industries stand to benefit from lower oil prices, when the price collapses, it sends a signal of lower global demand and that is weighing on sentiment in equity markets," said Jasper Lawler, market analyst at CMC Markets.
"The complete failure of [Organization of the Petroleum Exporting Countries] as a force to influence global oil supply has come just at a time when the dollar has been at its strongest in months ahead of a widely anticipated [US interest] rate hike," Lawler added.
However, by the London close, oil prices were rebounding, with Brent oil trading at USD40.75 a barrel and WTI at USD37.84. The late surge in prices helped some oil companies end amongst the small handful of gainers in the FTSE 100, with BP up 0.4%.
The price of gold had a relatively stable day compared to other commodities. At the London close, the metal traded at USD1,074.56 an ounce.
Data published by Eurostat confirmed growth in the eurozone economy eased slightly in the third quarter. Gross domestic product grew 0.3% quarter-on-quarter in the third quarter, which was marginally below the 0.4% expansion seen in the second quarter, but matched the initial estimate.
Year-on-year, GDP climbed 1.6% in the third quarter, matching economists' expectations and also unchanged from the earlier estimate.
The euro fell slightly after the data but recovered throughout the rest of the session and at the London close traded the dollar at USD1.0876. The pound traded at USD1.4998.
In the economic calendar for Wednesday, ahead of the European equity market open, Chinese consumer and producer prices are at 0130 GMT and German trade data at 0700 GMT. Later, in the US, MBA mortgage applications are at 1200 GMT, wholesale inventories are at 1330 GMT and the Energy Information Administration's crude oil stock is at 1430 GMT.
In the UK earnings calendar, industrial equipment rental company Ashtead Group and transport operator Stagecoach Group both report half-year results, while construction and support services company Carillion and aircraft services company BBA Aviation release trading statements. There also are full-year results from healthcare infrastructure investment company MedicX Fund, travel company On the Beach Group, budget hotel operator easyHotel, and IT and communications service provider Alternative Networks.
By Neil Thakrar; [email protected]; @NeilThakrar1
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