Monday, September 25: indices proved to be mixed both in London, and on the continent following a downgrade to the UK’s credit rating late on Friday by Moody’s and a slight shock in German Elections. The FTSE 100 closed -0.13%.
Moody’s, one of the major credit rating agencies downgraded the UK to an Aa2 rating from Aa1, noting the departure from the European Union as creating uncertainty, hindering both its ability to keep to its debt reduction plans and prospects for economic growth. Theoretically, this should make it more expensive for the UK to borrow given the inverse relationship between credit rating and interest rates. Despite this, sterling saw its recent strength largely sustained over the weekend against both the euro and US dollar.
Mrs Merkel’s CDU/SCU polled at 33% against the SPD’s 20.5%, with these leading parties seeing the lowest share of the vote since World War II. The AfD(Alternatives for Germany) party came third with 12.6% of the votes, the first far right part in the Bundestag since the Nazi party. The SPD want to be the main opposition rather than enter into a coalition government with Merkel, leaving Merkel attempting to join forces with FDP and the greens. However, there does exist some ideological barriers these between parties. The result led to a weakening of the euro today.
Oil majors and service groups were lifted higher by a Brent crude oil market now comfortably in bull territory, up 28% since late June. At current trading of $58.21/bbl, Brent crude is more than 9.5% higher since the start of September as tensions rise in the Middle East with a Kurdistan independence referendum today. Companies such as Petrofac, Royal Dutch Shell, and Hunting were beneficiaries intraday. Tullow Oil shares also rose 6.53% after it emerged that it would avoid any potential disruption from a new sea boundary between Ghana and Cote d’Ivoire. A new border set by the Hamburg-based International Tribunal of the Law of the Sea following a dispute between two African nations wouldn’t affect the company’s TEN fields. Management now expect to re-start development of drilling in the TEN fields, with drilling expected to resume before the close of the year.
Across Europe, indices were mixed at the close with the FTSE 100 -0.13%, the DAX 30 +0.02% and the CAC 40 -0.27%.