Traders are nervous about falling commodity prices
UK stocks gave up opening gains in early trading to tread negative territory as investors continued to fret about the impact of falling commodity prices and the outlook for the global economy.
At 10:19 the FTSE 100 was down 49.38, or 0.77%, to 6339. The index lost a hefty 2.4% in the previous session as a slump in copper prices spooked investors.
This morning copper staged a modest recovery, rising 2% to $2.56/lb. The metal has traditionally been regarded by traders as a proxy for the world economy because of its wide application, ranging from household appliances to construction.
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On the corporate front, Tullow Oil was in sharp focus after it revealed it would be writing off $2.7bn before tax due to falling oil prices and unsuccessful exploration programmes. The Africa-focused explorer also said in a statement that it was further cutting its 2015 exploration budget by 30% to $200 million. Its shares fell 1.65% to 352p.
Oil giant BP edged down 0.16% to 381.55p on reports that it will announce 300 job losses following a review of its North Sea operations in response to falling oil prices. The group currently employs 3,500 people in the North Sea, with a further 11,000 elsewhere in the UK.
Associated British Foods shares gained 1% to 3073p after investors shrugged off its warning that full-year earnings would be hit by a large profit reduction at its sugar business and the strength of sterling. The market focused instead on its key clothing retail division, Primark, which saw sales rise 15% on last year over the festive season, thanks in part to an "exceptional performance" in France.
The dramatic fall in oil prices in recent months, with further declines expected, and copper's worrying performance yesterday, indicate that markets will remain volatile for some time.
Michael Hewson, chief market analyst at CMC Markets, says the falls in commodity prices are welcome from an inflationary point of view, but the sharp declines are raising concerns that the demand-driven days of a few years ago are a thing of the past. That implies that with all the capital expenditure that has gone into higher production and new resourcesin the past few years, there is now excess capacity in the commodity space at a time when demand is declining.
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Kam is a former deputy editor at Hemscott Invest and online editor, City A.M and he was also previously the Digital Editor at IFA Magazine. Kam is currently a senior journalist at The Global Treasurer and contributes to MoneyWeek. Kam shares expertise on the FTSE 100, investing and global stocks.
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