The FTSE 100 undid all of the prior session’s gains on Tuesday as lower oil prices dragged on BP and Shell, and investors trimmed positions ahead of interest rate-sensitive events later this week.
BT did nothing to support sentiment as it sank on news that Sky, one of its biggest customers, was choosing one of BT’s rivals for future fibre broadband expansion.
“The FTSE 100 started off Tuesday on the back foot despite gains in the US and Asia overnight as its heavy weighting towards oil stocks proved a headwind,” said AJ Bell’s head of financial analysis Danni Hewson.
“Hopes of a ceasefire in Gaza and continuing concerns about Chinese demand combined to drive oil prices to their lowest levels since the beginning of August and that put index heavyweights BP and Shell under pressure.
“While oil did dip below $76 around the beginning of August it has consistently traded above $80 per barrel for much of this year. If oil prices remain at these levels it could help reduce inflationary pressures and give central banks more room to make interest rate cuts.”
Lower energy prices will undoubtedly be helpful for the medium-term health of equities. However, the composition of the FTSE 100 and its weighting towards commodities meant the index was down 0.6% at the time of writing on Tuesday, underperforming the German DAX and French CAC.
BT
BT was the biggest faller on reports Sky is partnering with one of BT’s rivals to expand its fibre broadband reach.
“BT shares opened lower on rumours that Sky may be partnering with CityFibre starting next year,” said Hargreaves Lansdown’s Matt Britzman.
“The BT impact is through its Openreach business, which has Sky as its biggest external partner. There are genuine concerns about its reliance on a single customer, but a deal with CityFibre is unlikely to have a major impact on the current relationship.”
The deal between Sky and CityFibre is a real kick in the teeth for investors who are desperate for BT to produce meaningful growth. One of its largest customers choosing a rival when BT would have hoped to meet this demand in the future has not been taken well, and shares are down 6%.