While the pump-builder advised that “there are signs in the group’s third quarter performance that our core markets have started to improve,” investors gave little positive reaction to this news as Weir is yet to reap the fruits of these conditions.

Indeed, the company warned that “profits are expected to be slightly lower than current market expectations” in 2016 as pricing difficulties persist.

Slippery slope

Weir noted that orders at its Oil & Gas division slumped 10% year-on-year between July and September, with original equipment orders falling almost a quarter and aftermarket orders dipping 6%.

The Scottish engineer noted that in the critical North American market “volume growth was offset by sustained pricing pressure which, combined with the division’s focus on reducing inventory and maximising cash generation, restricted flow through to profits.”

But this wasn’t Weir’s only headache, the company announcing that “international markets have become increasingly challenging, with customers postponing orders and reducing activity levels.” In particular, Weir noted that competitive pressures had increased in the Middle East.

And Weir struck a cautious tone looking ahead, commenting that “assuming commodity prices remain supportive, we anticipate further sequential growth for the Oil & Gas division in the fourth quarter but little improvement in the pricing environment.”

Goldman warning

Besides, hopes that raw material values will remain supportive could be a hope too far. Indeed, Brent’s capacity to move back above the $50 per barrel milestone is already under huge scrutiny as worrying supply and demand indicators keep the sector under extreme stress.

Just this week Goldman Sachs warned that Brent values are in peril of slipping back to around the low $40 bracket should OPEC members fail to initiate a much-needed output freeze, as was initially touted in September.

And this is a very possible scenario, the broker believes, Goldman Sachs commenting that “the lack of progress on implementing production quotas and the growing discord between OPEC producers suggests a declining probability of reaching a deal on November 30.”

Just the start?

It should come as little surprise that Weir’s poor update has caused investors to pile out of the door again. After all, the pump play’s 65% share surge in 2016 gives plenty of reason for today’s weakness.

And I reckon that there’s still scope for Weir’s share price to keep hurtling lower.

The company is expected to endure a 16% earnings decline in 2016, the fourth consecutive drop if realised. And this creates a P/E ratio of 25.1 times, shooting above the benchmark of 10 times widely associated with stocks that have patchy earnings outlooks.

Given the likelihood of further margin pressures at Weir — not to mention fresh order troubles should commodity prices turn lower and capex budgets across the oil industry take another hit — I reckon next year’s predicted 23% bottom-line recovery is in danger of wildly missing the mark.

I’m convinced Weir remains far, far too risky for investors right now.

The post Weir Group plc falls after slashing profits forecast appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

This strength does have some logic. After all, the FTSE 100 is packed with companies whose massive international exposure minimises the possibly-negative implications of the leave vote. And of course many stocks with huge overseas operations also stand to gain from heavy sterling weakness in the months — and possibly years — ahead.

Pound perils

Indeed, demand for the UK’s big-caps could carry on rising should the pound continue to haemorrhage value as many experts are predicting.

Both HSBC and Goldman Sachs are convinced that sterling will plumb to 1.20 against the US dollar by the end of the year, worsening from the 31-year trough below 1.30 hit in recent days. And Deutsche Bank expects a slip to 1.15 in the months ahead.

Bank action

As well as reflecting fears concerning the domestic economy, the pound has also lost value as the market expects an imminent interest rate cut by the Bank of England.

However, this may not be the only round of action bank governor Mark Carney and the Monetary Policy Committee may have to take, with Nomura expecting another rate reduction in November.

On top of having further negative implications for the pound, the prospect of extra liquidity flooding into the system could bolster the FTSE 100 still further.

Withdrawal symptoms

The appointment of Theresa May as prime minister — thereby truncating a possible three-month wait for the next PM — has also propelled the FTSE 100 recently, soothing the nerves of those fearing a prolonged British withdrawal from the EU.

Although a remain supporter prior to June’s vote, May has vowed since then to deliver Brexit. But this is unlikely to be the end of the matter. Indeed, other EU leaders are likely to try to play hardball concerning access to the single market, a development that could still lead to huge delays in Article 50 being triggered.

Meanwhile, the likelihood of last month’s referendum being upheld remains a bone of contention as calls for a Parliamentary vote on the matter circulate; lawmakers pore over the whether Brexit is constitutionally viable; and the government negotiates while trying to hurdle a severe economic shock and possible break-up of the UK.

In other news…

The tetchy political landscape isn’t the only factor that could send the FTSE 100 sinking again. As I’ve long argued, the index’s huge weighting towards energy and mining leaves it in danger of a correction should supply and demand indicators continue to worsen.

For one, the stream of disappointing economic data from China is unlikely to end soon, piling further pressure on commodities suppliers.

On top of this, Britain’s blue chips aren’t completely immune to the prospect of a domestic recession. Banks like Barclays and Lloyds still deal at a significant discount to their pre-referendum levels, while housebuilders such as Persimmon have also fallen thanks to their dependence on a healthy British economy.

Given this broad range of factors, I believe it’s nigh-on impossible to confidently guess where the FTSE 100 will be moving to in the weeks and months ahead.

The post Is the FTSE 100 heading to 7,000? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.