Weak energy pulls UK stocks lower

Published Dec 14, 2012

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Weakness in energy stocks dragged on Britain's top shares on Friday, with the index lower as the heavyweight sector was knocked by cautious comment from Barclays Capital.

Falls by energy stocks knocked around 3 points off the index, with traders citing the impact of a cautious European sector review from Barclays Capital, with the bank cutting forecasts and target prices across the board.

“The stark reality of the last five years is that the European integrated companies have fallen very short of their production goals  As a result, we have cut all of our volume forecasts, stepping well away from company guidance. The average cut is 6 percent in 2016, leaving volumes 11 percent below guidance for those companies that provide it,” Barclays said.

BG Group was the worst off in the UK sector, shedding 0.6 percent, as Barclay said it sees few near-term catalysts for the shares and awaits clarity on the firm's strategy following Thursday's appointment of Chris Finlayson as its new chief executive from January 2013.

Negative broker comment also weighed on the mining sector , with Anglo American and ENRC shedding 1.8 percent and 0.9 percent respectively, as UBS downgraded the pair to “neutral” from “buy”.

Falls by miners, however, were less pronounced than that their of their energy peers as copper prices posted modest gains following positive PMI data from China, the world's biggest consumer of metals.

China's HSBC flash purchasing managers' index for December, by contrast, hit a 14-month high thanks to a fifth straight monthly gain.

“Although sentiment was helped by the better-than-expected Chinese manufacturing data, traders are showing unwillingness to build large positions going into the weekend,” Fawad Razaqzada, Technical Analyst at GFT Global said.

At 14:50 SA time, the FTSE 100 index was down 8.91 points, or 0.2 percent at 5,920.73, having seen a run of six days of continuous gains snapped on Thursday, with the index on course for gains of just 0.1 percent over the week.

Trading volumes were also thin at the end of an uninspiring week, a mere 14 percent of the already modest 90 day average.

“On the technical front, it is discouraging to see the FTSE struggle at these levels given proximity to the psychological 6,000 mark. We need a stimulus to push the index through that barrier and at the moment it appears like that stimulus lies in the hands of poker players - otherwise known as US politicians - who are trying to call each other's bluff regarding the fiscal cliff that will ultimately determine direction going forward,” GFT's Razaqzada added.

US politicians are currently negotiating with the US President to amend a package of austerity measures and tax hikes, known as the fiscal cliff and due to come in force on Jan 1, which could drag the fragile US economy into recession.

Some caution over growth in Europe, which is Britain's biggest trading partner, also weighed, with the latest zone purchasing managers surveys suggesting recession is deepening, although the overall data was more mixed.

Germany, Europe's largest economy, saw its private sector bounce back to growth for the first time in eight months in December.

In neighbouring France, however, while the downturn eased the PMI held below 50 for the 10th straight month.

“While many areas are still deep in contraction territory, they're not contracting as fast as they were. This could suggest that the worst is over and could point to a brighter 2013, although we can't get ahead of ourselves. There's still a long painful road ahead,” said Craig Erlam, Market Analyst at Alpari (UK). - Reuters

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