By This Is Money Reporters
17:30 (CLOSE): A warning of ‘significantly lower’ fourth quarter profits from oil giant Royal Dutch Shell sent shares lower, but the wider top-flight gained ground following buoyant Christmas retail figures.
It was an uncomfortable start to the tenure of new boss Ben van Beurden, who admitted the performance was ‘not what I expect from Shell’ just two weeks after succeeding Peter Voser as chief executive.
Shares fell 1 per cent on the update but the wider FTSE 100 Index was 13.9 points ahead at 6829.3 thanks to retail sales figures that were far above expectations.
Drop: Shell shares fell 1 per cent amid warnings of ‘significantly lower’ fourth quarter profits.
The Office for National Statistics said sales leapt 2.6 per cent higher month-on-month in December – against forecasts of 0.2 per cent – and jumped 5.3 per cent year-on-year – the best performance for more than nine years.
The FTSE 100 is now edging close to the 6840.3 figure that was the highest reached during 2013. That was the best end-of-day number for the top-flight since an all-time high reached on December 30 1999.
In New York, the Dow Jones Industrial Average was ahead after a mixed bag of economic data – with factory output up for a fifth straight month but a slowdown in construction during December. Bourses in France and Germany were up too.
On currency markets, sterling was buoyed by the UK retail sales data, climbing one cent against the greenback to 1.64 US dollars and a cent against the single currency to 1.21 euros.
But in London, progress was held back by falls from heavyweight stock Shell, which said a range of factors and writedowns were expected to see fourth quarter earnings plunge 70% and full year earnings drop 38 per cent.
Shell blamed higher exploration costs and ongoing woes in refining for the poor end to its year.
Its shares dropped 26.5p to 2279.5p, while rival BP recovered from heavy early session losses to stand 1.6p higher at 491p.
Bookmaker William Hill led the top tier fallers’ board after its trading update revealed a 13million hit from the sector’s hammering last week when the top seven Premier League football teams all secured victories for the first time.
The group reported robust fourth quarter figures and said it expects to post a slightly improved operating profit of 334million for 2013, up from 330.6 million in 2012, but shares fell 3 per cent or 12.6p to 360.1p.
Rival Ladbrokes dropped 5 per cent in the FTSE 250, down 9p to 167p.
Meanwhile, Royal Bank of Scotland was another top-flight loser as the Financial Conduct Authority outlined details about how its probe into the state-backed group would take shape.
It follows damaging allegations about its small business customers being driven to the wall to boost the bank’s profits. Shares fell 2 per cent, or 7.8p, to 363.7p.
The biggest FTSE 100 risers were Admiral, up 81p to 1407p, Glencore Xstrata up 11p to 338.2p, Hammerson up 13p to 518p and Land Securities up 22p to 1030p.
The biggest FTSE 100 fallers were William Hill, down 12.6p to 360.1p, Aberdeen Asset Management down 12p to 439p, Royal Bank of Scotland down 7.8p to 363.7p and ITV down 3.9p to 203.2p.
15.55: London shares were modestly higher in late afternoon trade as Wall Street recovered from an opening decline, with traders assessing some mixed US economic data and corporate earnings.
With around half an hour of trading to go, the FTSE 100 index was ahead 7.0 points at 6,822.4. Overall the blue chip index was up 1.3 per cent for the week, on track for its best weekly gain this year.
In New York, the Dow Jones Industrial Average turned 25.2 points higher at 16,422.2 after data showed US industrial output rose at its fastest pace in 3-1/2 years in the fourth quarter as factory activity closed out the year on a strong note, a sign of the economy’s brightening prospects.
Footsie up: The FTSE 100 index held firm in late afternoon trade on track for its best weekly gain this year of around 1.3 per cent
Meanwhile, US housing starts fell 9.8 per cent in December, pausing after recent strong gains that had propelled home building activity to multi-year highs, although the decline was less than expected.
US corporate earnings news was mixed today, with Morgan Stanley higher after a fall in the bank’s quarterly profit proved less than feared, but conglomerate General Electric weakened although it posted a slightly better-than-expected rise in fourth quarter revenue.
And shares of chip giant Intel dropped after its fourth quarter earnings missed expectations and it gave a lukewarm forecast for first-quarter revenue.
Intel’s cautious statement weighed on British blue chip peer ARM Holdings which shed 2.5p at 984.0p.
Also on the downside with blue chips, Royal Dutch Shell was the major drag, dropping 44.0p to 2,155.0p after the oil major warned its fourth-quarter figures are expected to be significantly lower than recent levels of profitability because of oil and gas prices and problems with its refining business.
But on the upside, miners lent their strength to the UK blue chip index again today, extending a bounce seen yesterday following bullish production numbers from Rio Tinto and after Citigroup turned positive on the sector for the first time in 3 years. Chilean copper miner Antofagasta stood out, ahead 13.0p at 845.5p.
Blue chip sentiment was also supported by data showing British retailers saw the fastest annual sales growth in more than nine years in December, with activity expanding at more than double the expected pace.
Among firmer retailers, supermarkets owner Sainsbury’s was a strong performer, up 7.8p at 368.9p helped by a revival of bid speculation following recent press comment.
Motor insurers were also in demand, with Admiral Group topping the FTSE 100 leader board, up 92.0p to 1,418.0p after data showed a multi-year decline in car insurance prices slowed in the last quarter of last year, potentially opening the door for some earnings upgrade for the industry. While average premiums continued to fall in the final quarter of 2013, the pace of decline slowed considerably.
The cost of an average new comprehensive car insurance policy stood at 644 at the end of 2013, down 12.5 per cent from a year ago but only 1 per cent lower than three months earlier.
‘The trend would be consistent with a stabilisation and, hopefully, an improvement in prices sometime in 2014,’ said Ben Cohen, an analyst at Canaccord Genuity.
‘We are in an environment where there hasn’t been a lot of upward earnings revision across the whole sector and investors are keen to buy into sub-sectors where you’ve got some signs of positive earnings momentum.’
13.00: Big falls by oil giant Royal Dutch Shell today after it warned over ‘significantly lower’ fourth quarter profits failed to dent the end of week optimism in London at lunchtime.
The FTSE 100 Index gained 8.6 points to 6,824.1, with retailers leading the advance thanks to better-than-expected official UK retail figures.
Food retailer Sainsbury’s was the top blue chip riser, up 9.3p at 370.4p, while Marks & Spencer added 8.7p at 486.7p.
Footsie firm: The UK blue chip index was edging close to the 6,840.3 level, which was the highest level reached during 2013
The Office for National Statistics said retail sales leapt 2.6 per cent higher month-on-month in December and jumped 5.3 per cent year-on-year in the best performance for more than nine years. Experts had pencilled in a rise of just 0.2 per cent over the month.
The strong ONS figures come on the back of buoyant trading updates from the likes of Argos, Halfords, Primark and Next in the past few weeks, though updates from Marks & Spencer and Debenhams have disappointed.
Marc Ostwald, strategist at Monument Securities said: ‘Ostensibly this data was very strong, though it does not sit well with the array of individual retailers’ sales reports. While this makes a big payback in January very likely, especially given the weather, the December data may be a bit of an illusion, especially given the ONS’ report that the rise in sales as driven by smaller stores, where annual sales grew more than three times faster than in bigger stores.’
The UK blue chip index was edging close to the 6,840.3 level, which was the highest level reached during 2013. That was the best end-of-day number for the top-flight since an all-time high reached on December 30 1999.
But the blue chips progress was held back by big falls from heavyweight stock Shell today, which said it expected to see fourth quarter earnings plunge 70 per cent, and full year earnings drop 38 per cent, blaming higher exploration costs and ongoing woes in refining for the poor end to its year.
Shell shares dropped 49p to 2,146p on the warning, although BP pulled back from heavier early session losses to stand 2.2p lower at 487.3p.
Bookmaker William Hill was the main blue chip casualty, however, after it revealed a 13million hit from the sector’s hammering last week when the top seven Premier League football teams all secured victories for the first time.
William Hill shares fell 7.5p to 365.2p, while rival Ladbrokes dropped 5.9p to 170.1p.
On the up, however, blue chip insurer Aviva enjoyed better fortunes after revealing a joint venture with Indonesia’s Astra International as part of a plan to drive growth. Aviva shares rose 7.1p to 479.3p.
And drugs firm Shire was also higher, up 17.0p to 3,002.0p, as the City welcomed its move to offload the Dermagraft business despite taking a 395million hit on the sale. Shire is selling the firm, which specialises in bio-engineered skin substitute, to US group Organogenesis less than three years after buying it for 456million.
10.40: Footsie extended its gains midmorning as the release of much stronger than expected official UK retail sales numbers provided a lift for the market, offsetting a shock profit warning from oil giant Shell.
By midsession, the FTSE 100 index was ahead 18.2 points at 6,833.7 with retailers leading the advance.
UK retail sales came in ahead of expectations over the crucial Christmas period, the Official for National Statistics said today, as they leapt 2.6 per cent during December, equalling an all-time record.
Retail boost: Official data for UK retail sales saw a much stronger than expected increase in December
Economists had pencilled in a rise of just 0.2 per cent over the month, a make-or-break period for many high street businesses.
Howard Archer, chief economist at IHS Global said: ‘December’s strong retail sales performance provides a major boost to hopes that GDP growth in the fourth quarter of 2013 remained up around the 0.8 per cent quarter-on-quarter rate achieved in both the third and second quarters.’
‘Looking ahead, there is some uncertainty as to how robust consumer spending will be in the early months of 2014. It is very possible that consumers could take a breather after finally splashing out for Christmas and in the sales, given that inflation is currently still running at double the rate of earnings growth,’ Archer added.
The ONS figures come on the back of buoyant trading updates from the likes of Argos, Halfords, Primark and Next, though Marks & Spencer and Debenhams have struggled.
Food retailer Sainsbury’s was the top blue chip riser, up 8.8p at 369.9p, while Marks & Spencer added 7.6p at 485.6p.
But the surprise profit warning from Royal Dutch Shell was the main focus today, with the oil group’s new boss saying a range of factors and writedowns were expected to see fourth quarter earnings plunge 70 per cent.
Shell’s new boss Ben van Beurden – who only succeeded Peter Voser as chief executive on January 1 – admitted the performance was ‘not what I expect from Shell’ in a gloomy start to his tenure.
Shares in the firm fell 74p to 2232p, with rival BP also hit by the surprise alert, down 7p to 482.5p.
Bookmaker William Hill was another casualty in the top tier after a trading update revealed a 13million hit from the sector’s hammering last weekend when the top seven Premier League football teams all secured victories for the first time.
The group said it expects to post a slightly improved operating profit of 334million for 2013, up from 330.6million in 2012, but its shares fell 10.5p to 362.3p.
08.55: London shares pushed modestly high in opening deals today today, shrugging aside big falls in the heavyweight energy sector after a profit warning from Royal Dutch Shell.
After nearly an hour’s trading, the FTSE 100 index was up 4.0 points to 6,819.4, edging ever closer to its 2013 peak of 6,875. The UK blue chip index closed 4.44 points lower at 6,815.42 on Thursday.
Royal Dutch Shell was the top blue chip faller after the oil giant warned that its fourth-quarter figures are expected to be significantly lower than recent levels of profitability because of current oil and gas prices and problems in the downstream environment.
Shell shock: Royal Dutch Shell saw its shares drop after the oil giant warned fourth quarter results are expected to be ‘significantly lower than recent levels of profitability’.
Shell’s shares shed 79.0p to 2,115p, but Ishaq Siddiqi, market analyst at ETX Capital was hopeful of a recovery.
‘With the shares down over 6 per cent in 2013, (Shell) management are now under pressure to improve group finances with a strategy update in the spring of this year – if strategy is compelling enough, traders are likely to pile back into Shell to take advantage of the low share price,’ Siddiqi said.
The rest of the blue chip energy sector took fright after the warning, with BP losing 8.2p to 481.2p, and BG Group down 7.5p to 1.344p. BG was also upset by a downgrade in rating from RBC Capital today.
But otherwise the mood in London was positive, with supermarkets group Sainsbury leading the gainers, ahead 6.5p at 367.6p as traders awaited the latest official monthly UK retail sales data, due at 9.30 am.
Michael Hewson, chief market analyst at CMC Markets UK said: ‘The UK economy comes back into focus today particularly in light of the last two weeks of trading updates from the high street, which have seen quite a few winners and quite a few losers. The aggressive discounting seen just before Christmas had raised concerns that the UK consumer appeared reluctant to get out and spend money as the festive period approached.’
‘These concerns didn’t seem unreasonable given how well UK retail sales have done so far this year against a backdrop of shrinking disposable incomes as average incomes lag well behind inflation. This week’s inflation data does seem to suggest that this squeeze could be now starting to ease but nevertheless rising energy prices, amongst other items, may well have curtailed enthusiasm for large scale spending at the end of last year.’
‘December retail sales are expected to show a rise of 0.3 per cent, which would signal a significant underperformance for Q4 relative to the rest of the year. Given that the UK consumer makes up over 70 per cent of UK GDP a disappointing number is likely to see some estimates for Q4 GDP growth revised downwards,’ Hewson added.
With the US set for a long holiday weekend, as markets will be closed for Martin Luther King Day on Monday, trading and volumes could well be quite choppy today given that it is also the third Friday of the month, and therefore ‘triple witching’ as options and futures come up for expiry, Hewson said.
Stocks to watch include:
BANKS – Britain’s banks will have to shrink and sell off branches in order to improve competition if Labour wins the next election, party leader Ed Miliband will announce on Friday in a speech spelling out his agenda for financial reform.
TELECOMS – Germany’s Deutsche Telekom AG and France’s Orange said on Friday they will maintain the current management structure of their joint venture EE, putting on hold plans to float the largest mobile operator in Britain.
RETAILERS – John Lewis saw its weekly sales rise 9.5 per cent in the week to January 11.
SHIRE – The drugs group agrees to sell Dermagraft to Organogenesis, saying it will record a loss on the disposal of approximately $ 650million in the fourth quarter of 2013.
WILLIAM HILL – The bookmaker said it expects group operating profit of around 334million pounds, with net revenue increasing 16 per cent on a full year basis. AVIVA – The insurer and Astra International sign a joint venture in Indonesia, to serve the market in the country.
SPECTRIS – The industrial firm downgraded its forecast for 2013 operating profit.
EVRAZ – Russia’s largest steelmaker Evraz said on Friday its fourth-quarter crude steel output rose 0.7 per cent from the previous quarter to 4.0million tonnes.