Market movers: oil prices, US futures, Centrica and Ashtead

With stocks enjoying a largely positive start to the day, our head of investment runs through the latest on energy prices and the big company news.

European bourses have opened modestly higher after Monday’s slump, with the FTSE 100 lagging behind the German DAX and French CAC.

There are reports that an EU gas price cap is being considered to offset the surge in gas prices after Russia closed access for Europe to the critical Nord Stream 1 pipeline. In the UK, Liz Truss gets set to be formally appointed prime minister today, with markets concerned about the inflationary impact of her pledges to cut taxes and spend to tackle the energy crisis. 

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US markets get set to play catch up after Monday’s Labor Day holiday. After three weeks of declines, US futures are pointing to a higher open, with the Nasdaq Composite on track to snap its first six-day losing streak since 2019. 

Overnight in Asia, the Australian central bank raised rates by half a point, while China’s central bank the PBOC announced plans to cut its forex reserve requirement ratio in a bid to stem the recent depreciation for the renminbi. The currency’s midpoint hit the weakest level in two years, driven by the strength of the US dollar and aggressive rate tightening from the Federal Reserve. 

Oil

Brent crude is trading modestly lower, giving back some of Monday’s sharp rally after OPEC+ surprised the market by announcing an output cut of 100,000 barrels per day, despite the turmoil in energy markets and this year’s inflationary surge. There was no settlement for WTI on Monday because of the US Labor Day holiday, so prices are still showing as trading higher versus Friday’s close. 

Concerned about the ~25% decline off the highs for Brent crude, members of the oil cartel propped up prices with an output cut, squarely going against the desires of the West for oil prices to continue to ease in order to help alleviate some of the global inflationary pressures.

The cut was only modest and therefore mostly a form of verbal intervention, sending a signal to the West about OPEC’s ability to influence the market. Brent crude and WTI have been under pressure lately amid concerns about a global economic downturn prompting a slowdown in demand and the potential for increased supplies from Iran.

Centrica

Shares in Centrica (LSE:CNA) are trading higher following a report in the Financial Times suggesting the energy supplier is in talks to secure billions in additional financing amid rising collateral demands. It comes as incoming Prime Minister Liz Truss is expected to outline a billion-pound plan to tackle the energy crisis this week.  

Shares in Centrica have enjoyed a 55% surge over the last year, underpinned by the backdrop of gas inflation, allowing the company to reinstate its dividend this year and reported a leap in first half profits to £1.3 billion.

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However, the volatility in gas prices could be starting to take its toll, with Centrica reportedly making contingency plans in case the situation worsens. Perhaps the energy giant is attempting to impose political pressure on Truss who could announce a type of financing support for Centrica and others as part of her plans to tackle energy in her first course of action as PM.

Ashtead

Ashtead reported first quarter group revenue up 25%, with US rental revenue rising 29%. Quarterly adjusted pre-tax profit hit $555 million versus $437 million last year, keeping its full-year profit guidance unchanged. The industrial-equipment rental company said it was a strong quarter with "ongoing momentum in supportive end markets".

This is a strong set of top and bottom-line figures from Ashtead which appears to be doing its best to navigate the challenges from supply chain constraints, inflation, worker shortages, rising interest rates.

Ashtead is a cyclical business that is subject to the ups and downs of the macroeconomy and the threat of a UK recession set to be a major headwind this year and next.

Despite the robust quarterly performance, shares have sharply underperformed the FTSE 100 this year, down 30% versus the UK index down around 2.5% year-to-date, with the potential for further bearishness for the stock if the economy continues to soften.