The positive impact on the FTSE 100 from a higher oil price started to diminish on Tuesday as attention began to shift back to the wider economy and the next move by central banks.
Yesterday, a surprise OPEC production cut lifted shares in heavy weights BP and Shell. A repeat of those gains was absent on Tuesday and the FTSE 100 underperformed Europe.
The FTSE 100 gave up early gains to trade just 0.1% higher at the time of writing, while the German Dax gained 0.8% and French CAC added 0.5%.
Markets are faced with the decision to either focus on recent robust earnings and relatively healthy economic data, or attempt to predict the next move by central banks. There is also the threat of a US recession.
“The surprise production cut from OPEC+ continues to stoke concerns around inflation, with brent crude trading over $85 a barrel. There are some outside concerns this could encroach on the $100 mark once more, which would have legitimate ramifications for monetary policy and has already led to a reduction in short positions in oil,” said
From a technical perspective, broad equity indices have rebounded from oversold territory following the banking crisis saga and the opportunity to pick up bargains is dwindling.
The completion of this short-term mean reversion trade adds to the lack of clarity on UK stocks’ next move.
This was evident in FTSE 100 stocks on Tuesday with 86 of the 100 constituents moving less than 1% at the time of writing.
Vodafone was the FTSE 100’s top faller as the telecoms group fell 1.4% and hit the lowest levels since mid-February.
Glencore was the top gainer, up 2.2%, after it had its attempt to takeover Teck Resources rejected yesterday. Glencore had offered a 20% premium to Teck’s shares.
“The prospect of mega deals in the mining space has got investors excited, bringing a new lease of life to the sector which had previously been suffering from fears about weaker economic activity feeding through to reduced commodities demand,” said Danni Hewson, head of financial analysis at AJ Bell.
“Glencore led the FTSE 100 higher on Tuesday following its $23 million move on Canada’s Teck at the start of the week. While its business combination proposal was rejected, Glencore is likely to be persistent in its pursuit for greater things which means one cannot rule out a higher offer.
“Teck’s board said it wasn’t contemplating a sale of the business at this time, yet there is a price for everything and so it all boils down to how much Glencore is prepared to pay.”