London stocks were under pressure this week as Brent crude hit a seven-year low and investors looked forward to the Federal Reserve’s interest rate decision next week. The FTSE 100 ended down 2.22% to 5,953 points.
Brent crude plunged 3.4% to $38.41 per barrel as the International Energy Agency said it sees the global market as oversupplied until late 2016. The IEA said the global oil glut was set to worsen in the months ahead as demand slows and OPEC output booms.
Oil producers BG Group and Royal Dutch Shell were among the top fallers on the FTSE 100 on Friday. On the upside, the London Metal Exchange’s three-month futures contract on copper prices were sitting up 2.7%. Copper was also up 2.29% on the Comex.
Stateside, traders were wary ahead of an expected interest rate hike by the Federal Reserve on 16 December. Many analysts have priced in a 25 basis point rise in the key rate. Elsewhere, the People’s Bank of China’s signalled that it made more sense to measure the value of the yuan against a basket of currencies instead of just the US dollar, The Wall Street Journal reported.
Because of the link to the strengthening dollar, the renminbi has appreciated significantly in trade-weighted terms. Yet any sustained weakness in the renminbi relative to the dollar tends to be interpreted as “devaluation” and trigger market concerns. The timing of this announcement is significant, on the cusp tightening by the Fed, which could feed further dollar strength.
Closer to home, UK construction output rose less than expected in October from a month earlier, the Office for National Statistics revealed. Output increased 0.2% month-on-month in October, missing expectations for a 1% increase but better than the previous month’s 0%. In comparison to the same month a year earlier construction output gained 1% in October, well ahead of estimates for a 1.1% drop and September’s 0.3%.
Meanwhile, a survey by the Bank of England revealed consumers’ expectations for inflation of the coming year were unchanged at 2% in November. Expectations for the pace of increases in the cost of living in five years’ time, on the other hand, edged up to 2.9% from 2.8%.
The pound rose 0.33% against the US dollar but was down 0.12% against the euro on Friday. I the US business inventories were flat in October, missing analysts’ expectations for a 0.1% increase, the Department of Commerce revealed in a separate report. The University of Michigan’s preliminary estimate on the consumer confidence index rose to 91.8 in December from 91.3 in November, below estimates for a reading of 92.