Britain's main share index fell to near one-week lows on Thursday, with oil major Royal Dutch Shell weighing on the market after it missed earnings expectations. The bluechip FTSE 100 equity index ended down 0.2 percent at 6,810.60 points as Shell dropped 4.9 percent, among the worst-performing FTSE 100 stocks in percentage terms. The company also announced a $15 billion cut in spending due to the slump in oil prices.
Oil has fallen almost 60 percent since June due to economic weakness, low global demand and a boom in US shale production. John Smith, senior fund manager at Brown Shipley, said Shell's update had disappointed investors. The fall in its share price also knocked its rival BP, which weakened by 1.9 percent. "Earnings estimates look far too high. The real impact of the decline in the oil price will be felt in this year's earnings, and the dividend will remain under pressure if oil prices do not see a significant recovery soon," he said.
While the weak oil price has hit energy shares, it has benefited other sectors such as airlines, for whom a lower oil price means lower costs. The budget airline easyJet rose 6.2 percent, helped by a rating upgrade from Barclays. Globally, stock markets were subdued after the Federal Reserve said late on Wednesday that the US economy was expanding "at a solid pace" with strong job gains. Investors interpreted the comments as signalling that the US central bank remained on track to raise interest rates this year.
Higher interest rates, which increase the returns on offer from fixed income assets, can often push stock markets lower. A higher US interest rate would also push up the value of the dollar, but it hit the price of gold on Thursday. Higher US rates could encourage investors to withdraw from non-interest-bearing gold, and gold miner Fresnillo fell 5.2 percent. "Expectations for higher US rates are underwriting a higher dollar, a clear headwind for commodity prices," said Keith Bowman, equity analyst at Hargreaves Lansdown.