LONDON (Reuters) - Britain’s top equity index resumed its fall on Monday, giving back half the gains made in the previous session, as investors reckoned with reduced earnings expectations for oil companies after a slump in oil prices.
The blue-chip FTSE 100 index closed down 43.22 points, or 0.7 percent, at 6,267.07 points, after rising 114 points on Friday.
The FTSE has been volatile in recent weeks, hitting a 15-month low on Thursday. Investors have been unnerved by weak European economic data just as the U.S. Federal Reserve winds down its equity-friendly asset-purchase programme.
“There was a huge bounce up on Friday, but I don’t think the volatility will go away,” said Hantec Markets analyst Richard Perry.
Energy shares knocked 23.8 points off the FTSE as lower oil prices led analysts to cut some companies’ profit forecasts.
Brent was down 136 cents at $84.80/barrel after falling close to a four-year low at $82.60 last week, hit by weakening demand at a time of ample supply. [O/R]
Goldman Sachs cut its earnings estimates for the oil services sector by 18 percent to 22 percent, leaving the bank 20-25 percent below consensus.
“Historical correlations between oil prices and European oil service revenues imply there is a 10 percent-20 percent downside potential to revenue from 2014 (estimated) levels on scenarios of Brent oil prices at $90/$80 per barrel,” Goldman analysts said in a note.
Oil explorer Petrofac fell 2.8 percent as Goldman, Societe Generale and Natixis cut their target prices for the company. Gas major BG Group slid 3.8 percent. Royal Dutch Shell’s two listings dropped 2.3 percent.
Chip-maker Arm Holdings was also among top fallers, down 2.7 percent, before its trading update on Tuesday, with analysts at Bernstein recommending that clients sell the stock “short” in anticipation of weak numbers.
Intercontinental Hotels Group, also due to report on Tuesday, rose 4.3 percent, with traders saying a major investment bank was advising investors to buy the shares before the results’ publication.
Supermarket chain Tesco, whose shares have slumped some 20 percent over the last month after it said its profits had been overstated, beat the broader market downturn to rise 2.7 percent, making it the best-performing FTSE stock in percentage terms.
Traders attributed Monday’s gain to a report in The Times that private equity companies were planning to make offers for Tesco’s 9 billion pound Asian business, and to a Sky News report that Tesco’s accounting black hole would be smaller than originally stated.
“There’s probably a bit of bargain hunting going on with Tesco at these levels, but I still think they’ve got more problems to face down the road,” said Central Markets trading analyst Joe Neighbour.
Small-cap Spirit Pub Company surged 9.6 percent to 97.75 pence after it said its board was in talks with brewer and pub owner Greene King Plc on a revised 109.5 pence-per-share takeover offer.
Additional reporting by Sudip Kar-Gupta; Editing by Ruth Pitchford