FTSE 100 down as rally for oil majors loses steam

(Alliance News) - Stocks in London were largely lower at the close on Monday as a rally in oil majors ground to a halt and investors looked to an increasingly "two-speed" economy in the US.

The FTSE 100 index closed down 7.29 points, or 0.1% at 7,599.99 on Monday. The FTSE 250 ended down 35.76 points, or 0.2%, at 19,113.55. The AIM All-Share closed up 1.01 points, or 0.1%, at 790.59.

The Cboe UK 100 ended down 0.2% at 758.39, the Cboe UK 250 closed down 0.2% at 16,664.27, and the Cboe Small Companies ended down 0.2% at 13,286.05.

According to the latest data from S&P Global, the seasonally adjusted final S&P Global US services purchasing managers index posted 54.9 points in May, up from 53.6 points in April but slightly below an earlier flash estimate of 55.1 points.

Coming in above the 50.0 no-change mark, the latest data signalled the fourth successive monthly increase in output at service providers, with the rate of growth accelerating to the fastest since April 2022.

In contrast, the US manufacturing sector declined in May. The seasonally adjusted S&P Global US manufacturing PMI posted 48.4 in May, down from 50.2 in April and broadly in-line with the earlier flash estimate of 48.5.

"The US continued to see a two-speed economy in May, with the sluggishness of the manufacturing sector contrasting with a resurgent service sector," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

"While rejuvenated service providers will make hay in the summer season, the weakness of manufacturing raises concerns about the economy's resilience later in the year, when the headwind of higher interest rates and the increased cost of living likely to exert a greater toll on spending."

The US Federal Reserve will announce its next interest rate decision on June 14. According to the CME FedWatch Tool, markets see a 79% chance of US interest rates holding steady next week. A week ago, markets only saw a 36% chance of this outcome.

Amid the increasing expectations of a Fed rate hike pause next week, stocks in New York were broadly higher and the dollar was mostly firmer at the time of London equities close.

The Dow Jones Industrial Average was down 0.4%, but S&P 500 index was up 0.2%, and the Nasdaq Composite was up 0.4%.

The pound was quoted at USD1.2415 at the London equities close on Monday, down from USD1.2476 at the close on Friday. The euro stood at 1.0711, lower against USD1.0728.

Meanwhile, against the yen, the dollar was trading at JPY139.60, slightly lower compared to JPY139.68.

In London, the top blue-chip performers at the close on Monday were Vodafone, abrdn, and United Utilities. The stocks ended up 3.1%, 3.2%, and 1.6%, respectively.

Endeavour Mining finished 3.8% lower, making it the FTSE 100's worst performer on Monday as the price of gold declined.

Gold was quoted at USD1,959.00 an ounce at the London equities close on Monday, lower against USD1,963.45 at the close on Friday.

In contrast, Brent oil was quoted at USD77.37 a barrel on Monday, up from USD75.89 late Friday, after Saudi Arabia announced it would cut its oil output by 1 million barrels a day during July.

The production cut followed a meeting of the Organisation of the Petroleum Exporting Countries Plus alliance in Vienna. The rest of the Opec+ oil producers agreed to extend earlier cuts in supply through the end of 2024.

This follows two production cuts earlier this year, which failed to push prices higher for very long.

Despite oil's rising price, Shell ended just 0.1% higher, whilst BP ended down 0.1% after rallying earlier in the day.

"The last OPEC production cut produced such a durable rally in crude prices that the body decided to try again, though it looks like the effect is even less pronounced than the last time around. While OPEC might hope it can buck the market, the muted reaction shows that investors are still maintaining their bearish outlook for the commodity," said Chris Beauchamp, chief market analyst at IG.

In the FTSE 250, Asos jumped 7.4% to 376.40 pence amid reports by the Sunday Times that the online fashion retailer had received a takeover approach from a Turkish company backed by China's Alibaba.

Citing "City sources," the newspaper said Trendyol approached its UK peer in late December with a potential deal that would have valued Asos at between GBP10 and GBP12 a share, triple its current price.

The Times added there are currently no live talks.

Russ Mould, investment director at AJ Bell, said the takeover approach goes to show that someone was "prepared to look through near-term problems and focus on the potential to revive the company's fortunes and put its brand back at the top of the fast fashion segment."

Elsewhere in London, Chill Brands climbed 6.7% after it said it agreed to relationships with specialist carriers and fulfilment providers for the home delivery of its products in all 50 US states.

On AIM, Itsarm plunged 35% after the company proposed compulsory liquidation, saying that the "creditors of the company would suffer detriment if the company was not placed into a formal insolvency procedure immediately."

Back in May, 62% of voting shareholders voted in favour of voluntary liquidation, which was lower than an undefined required majority for the resolution to pass.

Itsarm has been a cash shell since March. At the time, it sold its only operating subsidiary In The Style Fashion Ltd for GBP1.2 million.

In European equities on Monday, the CAC 40 in Paris ended down 1.0%, while the DAX 40 in Frankfurt ended 0.6% lower.

In Tuesday's UK corporate calendar, there is a trading statement from cigarette maker British American Tobacco and third quarter results from plumbing and heating products distributor Ferguson.

The economic calendar has a UK construction PMI print at 0930 BST, as well as US retail sales data at 1500 BST.

By Heather Rydings, Alliance News senior economics reporter

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