In the wake of the weekend’s meeting of oil producers which broke up without agreement on an output freeze, commoditiy companies are helping drag the stock market lower.
Technology firms are also under pressure after reports that Apple plans to reduce production of iPhones in the April to June quarter after sluggish sales.
So chip designer Arm is down 27.5p at 962.5p ahead of a trading update this week, while smaller peer Imagination Technologies is 6.5p lower at 171.75p. Another Apple supplier, Laird, has slipped 2.9p to 374.5p. Liberum analysts said:
The Nikkei is reporting that Apple has extended production cuts into the June quarter. Negative read across for Laird (around 17% Apple), Imagination (around 50% apple) and Arm (around 10% Apple).
Arm has also been unsettled by a downgrade from Jefferies, which has moved from buy to hold and cut its price target from £11.40 to 923p. The broker said:
Arm has been the darling of UK tech, but its story is changing. The Mobile tailwind is less assured, while new areas (Networking/Servers) are more competitive and fragmented. We model earnings per share more than doubling by 2020, but strongly believe the multiple the market has on that growth is too high. Into the first quarter 2016 print, we seek more comfort on i) smartphone chip pricing and ii) increases in accrued revenue.
Overall the FTSE 100 has fallen 31.05 points to 6312.70, having earlier dropped as low as 6261.
After the oil producers failed to agree a freeze, Brent crude is down 4.45% at $41.18 a barrel. So Royal Dutch Shell A shares have slipped 48p to £17.66, while BP is 7.8p lower at 348.15p. Joe Rundle, head of trading at ETX Capital, said:
The prospect of Opec and other big oil producers freezing output... helped lift crude from its January nadir, but in the end it’s proved just too much for the Saudis to cut a deal with Iran.
This was not a surprise – both sides had made their stances clear, although Saudi Arabia clearly thought Tehran might come to the table at the 11th hour.
The short-term impact on prices is clear to see this morning, while longer term it’s hard to see supply slowing much this year.
Arguably the biggest effect of this meeting is showing that Opec wields a little less power to control prices than it has in the past. The cartel is not what it used to be.
Mining shares have also fallen, with Antofagasta down 13.5p at 457.5p while Glencore has dropped 3.75p to 151.90p.
Elsewhere Centrica has lost 6.6p to 231.7p as the British Gas owner reported it had lost another 1.5% of its home energy customers in the first quarter.
But holiday group Tui has climbed 31p to £10.72 as Berenberg moved from hold to buy and lifted its target price from £12.75 to £13. The bank said:
We retain a cautious view about the tour operators industry and still believe that it will need to continue to extract efficiencies to stay competitive with the associated one-off restructuring costs. However, following the escalation in geo-political risks recently, we feel that the underperformance is overdone as we still expect the European consumer to go on holiday.
In our view, TUI continues to deliver a superior performance within its tour operation business. This is reflected in a stronger top-line evolution and also it has had a superior cash generation for shareholders. Furthermore, our analysis suggests that the TUI tour operation business is trading at a material discount to Thomas Cook if we put its Hotels and Cruises businesses on appropriate multiples. Finally, there appears to be strong interest in the Hotelbeds business, which we believe could lead to a sale price that is well received by the market.
Travel companies have also been lifted by the drop in the oil price, on the basis it could feed through into lower fuel costs. EasyJet is up 30p at £14.77 while British Airways owner International Airlines Group has added 9p to 543p. EasyJet was also the subject of weekend reports it was considering a bid for Monarch Airlines.
Housebuilders have recovered some ground after last week’s losses on concerns about the outlook, given Brexit worries and signs of falling prices. Berkeley Group is 46p better at £29.08 and Taylor Wimpey has risen 2.4p to 175.1p.
Sainsbury has slipped 1.1p to 283.8p following a report from Sky that a consortium of CVC, Qatar’s QIA and Canada’s Brookfield has abandoned a planned takeover after the supermarket group launched a £1.4bn bid of its own for Argos-owner Home Retail Group.
