BP Drags FTSE Into the Red

MONDAY MARKET UPDATE: Falling shares in index heavyweight BP following a deal to sell its 50% stake in joint venture TNK-BP saw the FTSE 100 close moderately lower

Holly Cook 22 October, 2012 | 6:16PM
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After a strong five days on the London market last week, FTSE shares traded in lacklustre mode on Monday as investors awaited further direction from overseas data and Eurozone leaders. 

The FTSE 100 index slipped 13 points or 0.2% to close at 5,883, while the FTSE 250 index shed 34 points or 0.3% to 12,040.

The slight decline was triggered in part by corporate earnings from US industrial bellwether Caterpillar (CAT), which added its name to the list of manufacturers that have recently provided disappointing numbers and forecasts.

Morningstar’s Adam Fleck said he may trim his fair value estimate on Caterpillar following the third-quarter results, though he still considers the shares to be moderately undervalued.

In Asian deals this morning, data showed Japan’s exports fell a greater-than-expected 10.3% in September from a year ago, with exports to China, the country’s biggest trading partner, dropping 14.1% due to the ongoing dispute over a group of islands. Exports to Western Europe slumped 26%.

The combination of economic data and disappointing corporate earnings was interpreted as a worrying sign of the health of the global economy. Further signs will be provided later this week when the UK and US both publish their first estimates of GDP growth figures for the third quarter. Consensus expectations point to US annual growth in the region of 1.6%, though Morningstar's Bob Johnson believes retail market growth and a better residential construction market could suggest GDP growth much closer to 2%. 

For the UK, economic Rob Harbron of the Centre for Economics and Business Research is forecasting a tentative return to positive growth, with the first GDP reading coming in up 0.3% quarter-on-quarter. Economic conditions are expected to remaind fragile for some time, however.

Turning to London trading, BP (BP.) was among the main casualties Monday, adding its weight to the FTSE 100 after the oil & gas giant confirmed it has agreed to sell its 50% stake in TNK-BP to Russia's state-owned Rosneft for $26.8 billion in cash and shares. Under the terms of the agreement, BP will take a near-20% stake in Rosneft, its projects and its profits. Shares in BP closed dfown 1.5%.

On the flipside, defensives and 'safe haven' stocks were in demand, with Randgold Resources (RRS) the top performer, 2.7% higher, and Imperial Tobacco (IMT) and Associated British Foods (ABF) rising 0.9%-1.1%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC392.50 GBX-0.41Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites