Sector movers: Oilers rally, banks split, REITs in the red
Oil-related companies were barreling higher on Thursday, while commercial real estate companies were subsiding badly, with the banking sector split.
Coming into the session, oil prices were sliding to 13-month lows as crude inventories unexpectedly surged, making for a 10th straight weekly increase. This came against a backdrop of Saudi Arabia refusing to cut production unless its OPEC/non-OPEC allies joined in with supply caps, while refinery strikes in France also added to market uneasiness.
A barrel of Brent crude was trading below $58, before reports that Russia has accepted the need to cut production sent the price up to tickle the underside of $60.
OPEC and non-OPEC producers are due to meet at the cartel's annual meeting in Vienna next week to discuss a new round of supply cuts of 1m to 1.4m barrels per day.
Russia's energy ministry meet the heads of domestic oil producers on Tuesday. "The idea at the meeting was that Russia needs to reduce. The key question is how quickly and by how much," Reuters reported, citing a source familiar with the talks.
Looking ahead to the Vienna meeting, analysts at TD Securities said: "We expect a large cut in the range of 1-1.5m bpd will be agreed, and given we believe demand expectations have hit a trough, we see markets tightening and prices recovering in 2019. However, we expect money managers to remain cautious following the recent massive momentum shock."
While political constraints are likely to prevent OPEC and non-members from adopting overly ambitious production cuts, said Unicredit, "it should be enough to set a floor to oil prices". Brent crude prices have dropped "too much, too fast" on fears that another supply glut is in the making, said analyst Edoardo Campanella, arguing that $60 or less not representing an equilibrium price for either traditional or shale producers.
"Brent prices are poised to recover soon," he said. "Although the oil demand outlook looks less solid than before the summer, this sharp price correction is primarily supply-driven and only an adjustment in global supply can reverse it. If next week the OPEC+ fails to bring sufficient production cuts to relieve the market, then the burden of the adjustment will be indirectly shifted onto American producers."
With the oil price picking up, producers, including Shell, Tullow and Premier Oil advanced, though BP was left behind. Oil services companies were all higher, led by John Wood Group, with Petrofac not far behind and Hunting only slightly up.
Going the other way, fast, was the real estate sector, sent tumbling after Intu Properties' suitors walked away.
The consortium, led by the company's deputy chairman John Whittaker, decided not to follow through with its proposed £2.9bn takeover offer, citing "uncertainty around current macroeconomic conditions and the potential near-term volatility across markets", sending Intu's shares plummeting more than 35%.
Broker Liberum said Intu was now "in a challenging position with its highly valued shopping centres facing cyclical and structural pressure, above average financial leverage, a departing CEO, and two recently failed bid processes which will have inevitably been disruptive to the business".
Analysts at Kempen said the withdrawal of the offer "has some stark implications for the company and sector".
Russ Mould, investment director at AJ Bell, said investors had begun "to despair of whether there will ever be a catalyst that closes up the substantial discounts to net asset value at which these property plays trade".
Peers Hammerson and Shaftesbury were down more than 7% and 2%, the latter also hit by Morgan Stanley trimming its price target to 880p from 920p and reiterating its 'underweight' rating.
The entire REIT sector was in the red, with British Land down almost 6%, Land Securities close to 5% lower, while Derwent, LondonMetric and Workspace sinking too.
In a note on the sector, analysts at Exane BNP Paribas suggested property was a value trap: "UK REITs are too cheap to be a no-go area with historically wide NAV discounts, low leverage for most and earnings yields at a significant spread to UK Gilts. However, total returns fall significantly below the cost of equity in our forecasts with limited visibility over when this might change."
Meanwhile, banks were split after the Bank of England stress tests were revealed overnight. RBS, Standard Chartered, CYBG and Barclays were the only names in the green, though the tests revealed the whole sector was strong enough to survive a global recession/house price crash/inflation spike more severe than a disorderly Brexit and 2008 financial crisis.
"RBS fared much better than last year, among the best, but Lloyds and Barclays among the worst," said market analyst Mike van Dulken at Accendo, wondering if this offered more room for higher dividends, special dividends or share buybacks.
Analysts at Berenberg said the headline message that all UK banks passed "obscures important sources of differentiation, in our view".
"As the only listed UK banks to remain above all requirements at all times, we believe RBS and Standard Chartered emerge as clear winners. This further underpins our view that both banks trade at too wide a discount to their nearest peers (Lloyds and HSBC)"
On Barclays, Berenberg said the situation was "more nuanced" but the BoE results "provide comfort that Barclays holds sufficient capital. This has been the key non-Brexit related concern among investors following our upgrade of Barclays earlier this year."
Top performing sectors so far today
Oil Equipment, Services & Distribution 12,924.12 +3.65%
Forestry & Paper 19,813.20 +3.01%
Mining 16,570.56 +2.68%
Leisure Goods 7,445.11 +2.58%
Industrial Engineering 10,913.46 +2.54%
Bottom performing sectors so far today
Real Estate Investment Trusts 2,771.12 -4.39%
Real Estate Investment & Services 2,538.82 -1.13%
Technology Hardware & Equipment 1,001.67 -0.78%
Electricity 6,779.95 -0.70%
Household Goods & Home Construction 15,782.44 -0.65%
Market Movers
FTSE 100 (UKX) 7,057.53 0.76%
FTSE 250 (MCX) 18,655.72 0.09%
techMARK (TASX) 3,501.50 0.82%
FTSE 100 - Risers
Ashtead Group (AHT) 1,821.00p 5.41%
Antofagasta (ANTO) 847.80p 5.13%
Wood Group (John) (WG.) 656.20p 4.59%
Glencore (GLEN) 296.75p 3.63%
Randgold Resources Ltd. (RRS) 6,484.00p 3.31%
Fresnillo (FRES) 783.36p 3.21%
Anglo American (AAL) 1,609.20p 3.17%
CRH (CRH) 2,217.00p 3.16%
Smith (DS) (SMDS) 341.70p 3.01%
Mondi (MNDI) 1,759.50p 2.99%
FTSE 100 - Fallers
Land Securities Group (LAND) 838.40p -4.23%
British Land Company (BLND) 580.20p -4.10%
Severn Trent (SVT) 1,898.50p -2.64%
Berkeley Group Holdings (The) (BKG) 3,295.00p -2.20%
easyJet (EZJ) 1,137.50p -1.90%
Taylor Wimpey (TW.) 138.82p -1.82%
Persimmon (PSN) 1,978.00p -1.79%
GVC Holdings (GVC) 755.50p -1.76%
Barratt Developments (BDEV) 473.20p -1.62%
SEGRO (SGRO) 609.60p -1.61%
FTSE 250 - Risers
RHI Magnesita N.V. (DI) (RHIM) 3,688.00p 8.47%
Go-Ahead Group (GOG) 1,645.00p 6.06%
Mediclinic International (MDC) 370.30p 6.01%
Renishaw (RSW) 4,288.00p 4.69%
Hochschild Mining (HOC) 161.60p 4.66%
Britvic (BVIC) 818.50p 4.60%
UDG Healthcare Public Limited Company (UDG) 650.50p 4.41%
Weir Group (WEIR) 1,469.00p 4.30%
Aveva Group (AVV) 2,556.00p 4.24%
Greene King (GNK) 528.60p 4.14%
FTSE 250 - Fallers
Intu Properties (INTU) 120.00p -37.69%
Hammerson (HMSO) 392.90p -6.67%
Senior (SNR) 233.20p -5.97%
Bellway (BWY) 2,612.00p -4.88%
Domino's Pizza Group (DOM) 255.40p -3.98%
Paragon Banking Group (PAG) 421.00p -3.62%
Shaftesbury (SHB) 873.00p -3.59%
Bank of Georgia Group (BGEO) 1,389.80p -3.49%
Derwent London (DLN) 2,930.00p -3.30%
IntegraFin Holding (IHP) 301.00p -2.90%