Blue-chips were in the red in early trading on Wednesday after a weaker performance on Wall Street.
The FTSE 100 Index fell 8.62 points to 6636.78 and small-cap indices were also in negative territory after the Dow Jones Industrial Average closed nearly 91 points off at 18,313.77.
The price of a barrel of Brent crude retreated overnight from Tuesday’s level of just below US$43.
But Brent rallied in early trading to stand 0.4% up at US$41.97 and a barrel of US light crude gained 0.4% to US$39.68 after US oil and gasoline inventories dropped, according to the American Petroleum Institute.
FXTM chief market strategist Hussein Sayed said: “This helped stabilise prices somehow, but focus today will turn to the Energy Information Administration release after showing stockpiles fell by 1.9 million barrels in the week ended July 29.”
Britain got yet another dose of bad economic news following the fateful ‘Brexit’ vote as data showed the service industry shrank in July at the same rate as in June.
Investors heaved a sigh of relief that the purchasing manager index (PMI) figures were not worse, allowing the Footsie and the FTSE 250 Index to pare early losses somewhat.
But the all-sector PMI racked up a record fall from 51.9 in June to 47.3 in July, signalling a 0.4% GDP decline in the third quarter.
Chris Williamson at Markit said: “The unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.
“The PMI is already deep into territory which would normally spur the Bank of England into taking action to stimulate the economy.”
In small-caps, shares in TechFinancials Inc (LON:TECH) ticked up 58.8% to 13.5p after it voiced confidence about meeting market expectations as it updated on the first half ahead of releasing interims next month.
Science in Sport PLC (LON:SIS) limbered up 11.8% to 61.5p as the sports nutrition company became the official sport nutrition supplier to US cycling governing body USA Cycling.
But Landore Resources Limited (LON:LND) sank as it said it was resubmitting samples for analysis from the BAM East gold prospect on its Junior Lake Property, Ontario, Canada.
Kibo Mining PLC (LON:KIBO) fell 14.9% to 5p as it said possible policy changes by the Tanzanian government over electricity power agreements may push back the timetable for its Mbeya thermal power station.
In the top flight, fashion chain Next Plc (LON:NXT) was the top riser with a 3.3% gain to 5300p as the mid-point of its profit before tax guidance for the year shifted up from £799mln, as flagged to the market in May, to £810mln.
HSBC Holdings PLC (LON:HSBA), up 3.3% at 498.65p, was also wanted as it sweetened a bitter pill of lower profits with a pledge to hand back up to US$2.5bn to shareholders in the second half.
Preview
London’s FTSE 100 is set to start Wednesday higher, albeit not by very much.
Economics and central bank policy remains a key focus amid continuing uncertainty – not just Brexit but on a broader malaise in Europe and beyond, as well as the renewed weakness in key commodity markets.
Stress testing has put European banks back under scrutiny, meanwhile second guessing on Central Bank policy making continues to sway sentiments one way and then another.
Tomorrow brings a Bank of England rate decision where some expect to see a change for the first time in seven years – with the market having fairly high hopes for a rate cut.
It makes economic stats (UK services PMI) a potential focal point, as signs of deterioration could pile on more pressure for a BoE cut.
In the markets economic worries pulled US stocks lower on Tuesday, with consumer stocks among the worst performers.
The Dow Jones dropped 90 points, 0.49%, to end the day at 18,313 while the S&P 500 lost 0.64% to 2,157 and the Nasdaq fell 0.9% to 5,137.
In Asia, the Shanghai Composite was the only notable riser, but was up just 0.11% to 2,974.
Japan’s Nikkei slumped 1.4% to 16,156 and Hong Kong’s Hang Seng lost 1.7% to 21,750.
Australia’s ASX 200 was down 1.25% at 5,471.
Here in London, the FTSE 100 is seen only a sliver higher. Spreadbetting and CFD group IG sees the benchmark up less than 4 points at 6,646 to 6,651 about an hour before the open.