FTSE 100 closes down as oil stocks drop and sterling gains

By Sruthi Shankar

(Reuters) -A slump in oil stocks and rally in sterling weighed on Britain’s top share index on Monday, as investors looked ahead to the Bank of England’s next move on interest rates amid a weakening global economic outlook.

As sterling hit a one-month high, the FTSE 100, packed with multinational companies that earn a large part of their revenue overseas, ended down 0.1%. The index had gained as much as 0.7% earlier. [GBP/]

Shares of oil majors BP and Shell fell almost 2% each as crude prices sank nearly 5% after weak manufacturing data in several countries weighed on the demand outlook. [O/R]

Wall Street indexes also wavered after strong gains last week, driven by better-than-expected earnings. [.N]

“Earnings season has brought optimism that perhaps market pessimism has been somewhat overdone, yet today has seen data take a nosedive in Europe and China,” said Joshua Mahony, senior market analyst at online trading platform IG.

“Between the biggest German retail sales decline since 1994, and contraction in manufacturing PMI surveys in China, Italy and Spain, the economic picture remains discouraging for investors.”

Meanwhile, a survey showed British manufacturing output and new orders declined in July at the fastest rate since May 2020.

The BoE will meet on Thursday, when policymakers are expected to lift interest rates by 50 basis points to 1.75% to tame surging prices, according to a Reuters poll taken over the past week as several economists changed their minds.

The BoE has never raised Bank Rate by a half point since it was made independent in 1997.

Among single stocks, HSBC jumped 6.1% after Europe’s biggest bank announced a higher profitability target and a bullish dividend outlook. It also pushed back on a proposal by top shareholder Ping An Insurance Group Co of China to split itself.

Pearson surged 12.7% as the education group reiterated its full-year profit outlook and said its new integrated structure under boss Andy Bird was helping save costs and grow the top line.

The domestically focused midcap index also reversed course to end the session down 0.4%.

Quilter jumped 14.6% after a media report said NatWest Group is considering a bid for the fund manager. NatWest gained 1.2%

(Reporting by Sruthi Shankar in Bengaluru; Editing by Uttaresh.V and David Holmes)