Anglo American To Go Through The Mill…

Tuesday, 16 February: FTSE indices started the second day of the week up, as Brent oil traded higher ($34.4/bbl) at the London open. Meanwhile, Asian markets consolidated gains seen the night before.  Gold miners traded down, as many oil companies traded up on the hopes of an OPEC meeting in Doha today.

Bullish sentiment based on the prospect of further monetary and fiscal intervention in Japan  was echoed yesterday by Mario Draghi as he prescribed that “the ECB will not hesitate to act” if either low energy prices or the banking sector entail downward risk for price stability, supporting equity markets early on today.

In late morning, news flow emerged from the OPEC meeting stating production would be frozen by Saudi Arabia, Russia, Quatar and Venezuela at January levels if other producers followed suit. This was not well received by investors since January levels were came in at record highs for both Saudi Arabia and Russia – this was a pledge that fell far short of investors’ expectations. This led to Brent oil giving away intra-day gains to trade lower, as “safe haven” gold and  Yen traded higher. The main European indices also gave away early gains to finish lower for the day.

Closer to home, UK annual inflation rose in January to its highest rate in a year. Clothing, food, and alcoholic drinks which were long subdued helped to boost inflation. January prices were 0.3% higher compared with the same month a year earlier, as the cost of fuel fell by less than it did in January 2015. However, month-on-month consumer prices dropped for the first time in four months last month, as prices fell 0.8% versus a 0.1% rise, below a consensus fall of 0.7%. Core inflation, which excludes energy, food, alcoholic beverages and tobacco eased to 1.2% in January, from 1.4% in December.  Again, inflationary pressures are predominantly weak and indicative that a UK rate rise is still far on the horizon given current expectations.

Anglo American closed +1.25% after volatile day trade as the company stepped up its restructuring programme, despite filing 2015 earnings that were ahead of analyst expectations. Anglo reported a 55% fall in underlying earnings before interest and tax to US$2.23bn from US$4.93bn in 2014. The miner is adjusting the business to cope with low commodity prices. Some commentators suggest that unit costs are too high, and unsustainable to such an extent that existing equity holdings will be worthless and that additional equity issuances could be necessary in the future. The miner expects to generate positive free cash flow in 2016, aided by a slight recovery in commodity prices since December.

At the close European indices were mixed with the FTSE 100 +0.65%, the CAC 40 -0.11%, and the DAX 30 -0.78%.