FTSE underperforms against peers as oil prices slump to nine-month low

·Business Reporter, Yahoo Finance UK
·4 min read
A worker cycles past a petro-industrial complex in Kawasaki near Tokyo. The FTSE was down after Asia slumped overnight
The FTSE was down on Wednesday, with mining and basic resource stocks heading lower. Photo: Thomas Peter/Reuters.

European stock markets ended mixed on Wednesday as traders were focused on Liz Truss’s energy bills policy, and as basic resources remained under pressure.

In London, the FTSE 100 (^FTSE) underperformed against its peers, down 0.7% on the day, with mining and oil stocks heading lower. Meanwhile the CAC (^FCHI) rose 0.2% in Paris, and the Frankfurt DAX (^GDAXI) 0.6% higher.

All sectors across the Stoxx 600 were in negative territory after opening, however, bourses in the eurozone staged a late recovery.

Basic resources and the oil and gas sector led the declines amid a drop in underlying Brent (BZ=F) and WTI prices.

Crude oil prices fell to their lowest level since before Russia invaded Ukraine in late February. Brent crude, the global benchmark, is down $1.56 to $91.27 (£79.90) a barrel, while US light crude has lost $1.68 to $85.2 a barrel.

It came as Truss took her position as new prime minister on Tuesday, when she met with the Queen at Balmoral. She said that the UK would “ride out the storm” of the worst cost of living crisis in a generation.

It has been predicted that billions of pounds of fiscal support is expected to be announced as soon as tomorrow, in an attempt to keep the lid on surging energy costs for businesses and consumers.

“The fear is that while these measures are likely to keep a lid on inflation now, the trade-off is a higher level of headline inflation over a longer period of time, which is likely to mean higher rates for longer,” Michael Hewson of CMC Markets said.

“Ultimately there are no easy solutions with any action taken this week needing to be weighed up against the costs of doing nothing, and the long-term damage to the economy of not acting.”

Read more: What a Liz Truss government means for your tax, bills and savings

The pound (GBPUSD=X) continued to remain under pressure against the dollar and the euro, trading at $1.1492, down 0.2%, and at €1.1606, down 0.17%.

Russ Mould of AJ Bell said: “Sterling remains weak and that is leaving UK stocks vulnerable to approaches from overseas predators – cybersecurity GB Group the latest on the block as it is targeted by a US private equity firm.

"An already shrinking UK tech sector on the London market can ill-afford another departure, GB’s peer NCC is also pulled higher by the news."

Across the pond on Wall Street, the S&P 500 (^GSPC) rose almost 0.9% and the tech-heavy Nasdaq (^IXIC) also climbed 0.9% by the time of the European close. The Dow Jones (^DJI) also edged more than 0.7% higher in New York.

Wednesday was the first full day’s trading of September after Labour Day was marked by volatility and rising bond yields.

On Tuesday, Wall Street closed lower after a strong ISM services survey for August which served to heighten the prospect that the Federal Reserve could go for another 75bps rate hike when it meets in two weeks’ time.

Read more: UK average house price rises to record £294,260

Stocks in Asia closed mostly lower on Wednesday night on concerns about fresh COVID restrictions on large mainland cities in China, and after weak trade data in the country which spurred fears about global demand.

In Tokyo, the Nikkei (^N225) fell 0.7% while the Hang Seng (^HSI) was 1% lower in Hong Kong, and the Shanghai Composite (000001.SS) managed to eke out a 0.1% gain.

Asian currencies tumbled against the dollar due to a surge in the US bond yields.

Read more: Kwasi Kwarteng says UK borrowing will be higher to support energy crisis

The Japanese yen hit a fresh 24-year low of 143.57 per dollar and China's yuan weakened 0.3pc to 6.96 against the dollar, approaching the psychologically important 7 mark.

Watch: Liz Truss' speech after being made new party leader and next PM