A slump in US markets and falling oil prices put paid to any hopes of a rebound in London shares on Wednesday.
The FTSE 100 Index had clawed back some of its earlier losses by lunchtime but lost the gains when Wall Street opened.
The Dow Jones Industrial Average fell more than 500 points as investors dropped shares in oil-related stocks such as Chesapeake Energy.
US consumer prices fell 0.1% month-on-month in December, mainly thanks to a 4% m/m decline in gasoline prices.
Economists at Capital Economics said: "With crude oil prices now below $30 a barrel, we can expect even bigger falls in the coming months. We anticipate declines in gasoline prices of around 5% m/m in both January and February."
The Footsie hit levels last seen in November 2012 during the session, closing down 203 points at 5,674.
Oil prices dragged down equities after the International Energy Agency (IEA) said on Tuesday that the crude market “could drown in oversupply” throughout 2016.
The price of a barrel of Brent crude fell 4.8% to US$27.38 and US light crude dropped 6.6% to US$26.58.
Royal Dutch Shell (LON:RDSB) leaked 75p to 1,295p on news that fourth-quarter profits may be 50% lower than last time, but it again voiced confidence about the planned merger with BG Group (LON:BG.) and said it was cutting 10,000 jobs this year.
BG LON:BG.), which also gave an update in which it forecast results in line with - or ahead of - its guidance for the year, reversed 18.4p to 921.5p. BP (LON:BP.) gave up 11.2p to 331.24p.
Analysts also said volatile Chinese markets overnight contributed to the downbeat market sentiment. The Shanghai Composite closed about 1% adrift.
Meanwhile, figures from the UK's Office for National Statistics (ONS) showed the UK labour market continued to strengthen in the autumn.
Real earnings continued to grow, but more slowly than in mid-2015. The pound rose after falling on Tuesday following doveish comments from Bank of England boss Mark Carney.
Hargreaves Lansdown senior economist Ben Brettell said: "Along with improving economic growth and rising core inflation, accelerating wage growth has been cited by the Bank of England as a prerequisite for judging that higher interest rates are appropriate.
"For much of last year wages appeared to be on an improving trend, but the last two data sets have seen the rate of growth slow from 3% to 2%.
"When combined with intensifying concerns over the global economy and the looming risk of Brexit, it appears the chance of an interest rate rise in 2016 is receding into the distance."
WH Smith shares rose 5.8% to 1,680p, one of the FTSE 250 mid-cap index's top risers, as high street sales rose for the first time some analysts could remember.
The craze for adult colouring books and the ‘colour therapy’ trend contributed to seasonal success, with the high street chain’s like-for-like sales rising 2% over the five-week Christmas period.
High street sales were flat for the whole period, while travel-based outlets saw LFL growth of 5% benefiting from increased passenger numbers through the holiday period.
Analysts at Peel Hunt said: "It is the first time in analytical living memory we've talked about positive like-for-likes on the High Street."
Canaccord Group’s David Jeary was more cautious, adding it was too early to declare a new era.
Victoria Oil & Gas (LON:VOG) shed 4.25p to 24.5p as the Cameroon-based gas supplier said seasonal influences on demand in the country, where the wet season boosts demand for hydroelectric power, meant production was lower than the previous quarter’s 8.2mln cf.
Genel Energy (LON:GNEL), the Kurdistan-focused oil & gas company led by former BP boss Tony Hayward, backtracked 17.75p to 106.25p after it forecast its operations to break even on a cash basis at a Brent oil price of US$20 per barrel for 2016, although production rose.
Shares in Graphene Nanochem (LON:GRPH), which develops graphene-enhanced products for the energy industry, rose 15.1%, or 1.23p, to 9.35p, following news that its first commercial order for Confi-Gel, its nano-engineered gelling agent or viscosifier, SimPlat 5, was ready for use.
Slower-than-expected orders caused Collagen Solutions (LON:COS) to trim its revenue guidance, but it stayed upbeat about overall prospects. Shares fell 13% to 7.5p.
MID-SESSION MARKET UPDATE
Oil heavyweights dragged the London market down on Wednesday after crude prices fell and Shell warned on profits.
The FTSE 100 Index slumped 185.4 points to 5691 as the price of a barrel of Brent crude fell 3.3% to US$27.8 and US light crude dropped 3.5% to US$28.6.
Royal Dutch Shell (LON:RDSB) leaked 80p to 1,289.5p on news that fourth-quarter profits may be 50% lower than last time, but it again voiced confidence about the planned merger with BG Group (LON:BG.) and said it was cutting 10,000 jobs this year.
BG LON:BG.), which also gave an update in which it forecast results in line with - or ahead of - its guidance for the year, reversed 27.7p to 912.2p. BP (LON:BP.) gave up 10.4p to 332p.
Analysts also said volatile Chinese markets overnight contributed to the downbeat market sentiment. The Shanghai Composite closed about 1% adrift.
Meanwhile, figures from the UK's Office for National Statistics (ONS) showed the UK labour market continued to strengthen in the autumn.
Real earnings continued to grow, but more slowly than in mid-2015. The pound rose after falling on Tuesday following doveish comments from Bank of England boss Mark Carney.
Alastair McCaig at spread-betting firm IG said: "Although GBP/USD might be off its lows, calling the price action a bounce might be stretching things just a little bit, with today's wage data the sore point in an otherwise healthy employment update from the UK."
Online supermarket Ocado (LON:OCDO) built on Tuesday's gains following market rumours that it was being eyed up by US web retailer Amazon (NASDAQ:AMZN). Shares rose 3.2p, or 1.2%, to 262.3p.
Some commentators suggested that it was not Amazon's style to expand by acquisition, but Keith Anderson, former industry analyst and vice-president of strategy & insights for e-commerce data intelligence firm Profitero, said: "There is precedent in its acquisitions of Zappos and Quidsi for accelerating growth in a key market through M&A activity."
Shares in JD Wetherspoon (LON:JDW) lost their fizz by 56.5p, or 8.4%, to 618p as the pub group revealed higher Christmas sales but said annual profits were likely to be towards the lower end of hopes.
Victoria Oil & Gas (LON:VOG) shed 1.5p to 27.25p as the Cameroon-based gas supplier said seasonal influences on demand in the country, where the wet season boosts demand for hydroelectric power, meant production was lower than the previous quarter’s 8.2mln cubic feet.
Genel Energy (LON:GNEL), the Middle Eastern-focused oil & gas company led by former BP boss Tony Hayward, backtracked 15p to 109p after it forecast its operations to break even on a cash basis at a Brent oil price of US$20 per barrel for 2016, although production rose.
Shares in Graphene Nanochem (LON:GRPH), which develops graphene-enhanced products for the energy industry, rose 13.2%, or 1.07p, to 9.2p, following news that its first commercial order for Confi-Gel, its nano-engineered gelling agent or viscosifier, SimPlat 5, was ready for use.
Westminster Group (LON:WSG) flew 0.25p higher to 17.5p as it signed a fourth agreement with an unidentified government client to supply long-term airport security services.
Shares in 88 Energy (LON:88E) bounced 3.3% to 0.31p on news that early observations and tests on the shale discovery in its Project Icewine well in Alaska were very positive.
LONDON OPEN
Jitters about a global oil glut put the skids under London shares again on Wednesday.
The FTSE 100 Index slumped 185.4 points to 5691 as the price of a barrel of Brent crude fell 2.9% to US$27.9 and US light crude dropped 3.4% to US$28.6.
Analysts also said volatile Chinese markets overnight contributed to the downbeat sentiment. The Shanghai Composite closed about 1% adrift.
Michael Hewson at CMC Markets said: "Continued concerns of oversupply in the oil and gas market, set against a backdrop of slowing global growth, have seen stock markets across the globe slip back into bear market territory."
Meanwhile, figures from the UK's Office for National Statistics (ONS) showed a rise in Britons in work between September and November last year.
ONS statistician David Freeman said: “These results show the labour market continued to strengthen in the autumn. Real earnings continued to grow, albeit at a slower pace than in mid-2015."
Shares in JD Wetherspoon (LON:JDW) lost their fizz by 49.5p, or 7.3%, to 625p as the pub group revealed higher Christmas sales but said annual profits were likely to be towards the lower end of hopes.
Royal Dutch Shell (LON:RDSB) leaked 70p to 1,299.5p on news that fourth-quarter profits may be 50% lower than last time, although it said it was confident about the planned merger with BG Group (LON:BG.) and was cutting 10,000 jobs this year. BG reversed 19.4p to 920.5p.
Victoria Oil & Gas (LON:VOG) shed a penny to 27.75p as the Cameroon-based gas supplier said seasonal influences on demand in the country, where the wet season boosts demand for hydroelectric power, meant production was lower than the previous quarter’s 8.2mln cubic feet.
Genel Energy (LON:GNEL), the Middle Eastern-focused oil & gas company led by former BP boss Tony Hayward, backtracked 13.25p to 110.75p after it forecast its operations to break even on a cash basis at a Brent oil price of US$20 per barrel for 2016, although production rose.
MARKET PREVIEW
London’s blue-chip index is heading for a triple-digit loss at the open after heavy falls in Asia overnight.
Financial spread bet firms expects FTSE 100 to start the day 120 points below yesterday’s close of 5,877, mirroring heavy falls in Tokyo and Hong Kong.
The US was one of the few markets to avoid the carnage, with the Dow Jones Industrial Average managing to eke out a gain of 28 points to 16,016 after a roller-coaster day.
Oil caused many of the concerns again with a brief rally quickly snuffed out by after comments from the International Energy Agency that the world was drowning in glut of oversupply.
Brent crude fell back to just above US$28 a barrel with West Texas light oil priced even lower.
It may have given much to talk about at the World Economic Forum in Davos, but investors not at the junket have decided to vote with their feet.
Tokyo had fallen by almost 4% near the close of the trading day and the Nikkei is close to the official definition of a bear market with a near-20% decline from its recent high.
Hong Kong, meanwhile, is down to a three and a half year low and fell even more than Tokyo in percentage terms.
Companies releasing updates today probably wish they weren’t, but BHP Billiton, JD Wetherspoon and Genel Energy are all scheduled to report.