Hikma Pharmaceuticals Share News (HIK)

LONDON (Alliance News) - UK stocks closed lower on Wednesday, starting June in the red, as commodity stocks fell and a weak trading update hit shares in building materials company Wolseley.

The FTSE 100 closed down 0.6%, or 38.86 points, to 6,191.93, and the FTSE 250 closed down 0.7%, or 123.26 points, at 17,061.47. The AIM All-Share closed down 0.3%, or 2.34 points, to 737.16. In mainland Europe, the CAC 40 in Paris closed down 0.7%, and the DAX in Frankfurt fell 0.6%.

Commodity stocks dragged on London's blue-chip index, with Antofagasta, down 4.0%, Rio Tinto, down 3.7%, and Glencore, down 1.7%, all among the biggest fallers, on lower iron ore prices and lacklustre Chinese manufacturing data.

"It's been an unhappy to start to June for equity markets with big slides across the board led by basic resource stocks and weakness in commodity prices, as concerns about the global economy reassert themselves once more," Michael Hewson, chief market analyst at CMC Markets UK, said.

The results of a survey by Markit and Caixin showed that manufacturing activity in China remained below a key threshold in May.

The manufacturing purchasing managers index fell to 49.2 in May from 49.4 the prior month, which was below the 49.3 expected by economists. A reading below 50 indicates a contraction.

"A slide below USD50 a ton in iron ore prices has helped pull mining stocks down heavily along with weak Chinese PMI data overnight," said CMC's Hewson.

The worries sparked by the weak Chinese data were partly offset by better-than-expected US manufacturing data.

The Institute for Supply Management said its purchasing managers index rose to 51.3 in May from 50.8 in April, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected a reading of 50.6.

Analysts at Capital Economics said the increase in the ISM manufacturing index still leaves it at a level that has historically has been consistent with GDP growth of only 2%. But Capital Economics had feared that the ISM would drop back below the 50 mark. Coupled with the services side of the US economy "doing much better", Capital Economics said actual second-quarter GDP growth will be nearer 3%.

In the US at the London equities close, the Dow Jones Industrial Average was down 0.2%, the S&P 500 down 0.1%, and the Nasdaq Composite down 0.1%.

Also on Wednesday, the Organisation for Economic Co-operation & Development warned that a vote for the UK to leave the EU in a referendum scheduled for June 23 would have a "substantial" impact on the UK economy.

Fears that the UK could back Brexit have already "undermined" growth, according to the OECD, which said a vote to leave would hit growth across Europe and rest of the world and trigger turbulence in financial markets.

The pound fell after an ICM poll conducted on behalf of the Guardian newspaper, released before the London market close on Tuesday, showed voters split 52% to 48% in favour of Brexit.

The pound was trading at USD1.4404 at the London close, down from USD1.4553 at the close on Tuesday. The euro was trading at USD1.1172, up from USD1.1131 at Tuesday's close. Gold was trading at USD1,210.03, down from USD1,213.55 at the close on Tuesday.

Brent crude was trading at USD49.62 at the London close, down from USD50.60 at Tuesday's close, as traders await a meeting of OPEC officials in Vienna on Thursday.

Also in the FTSE 100, pharmaceutical companies were among the strongest climbers, with Shire up 2.2%, and GlaxoSmithKline up 0.2%. Mediclinic International, the private hospital group added 2.0%.

Unilever, the Anglo-Dutch consumer goods company, rose by 0.9%, after signing an agreement to sell its AdeS soy beverage business in Latin America for USD575 million. Coca-Cola Co and bottler Coca-Cola Femsa are buying the AdeS soy business.

"This sale is a step in reshaping our portfolio in Latin America to deliver sustainable growth for Unilever and enables us to sharpen our focus," Miguel Kozuszok, EVP Latin America Unilever, said.

The AdeS brand has a presence in Brazil, Mexico, Argentina, Uruguay, Paraguay, Bolivia, Chile, and Colombia.

Elsewhere, Tesco, up 1.1%, was also among the risers, after it posted the slowest sales decline out of the big four supermarkets in the 12 weeks ended May 22.

According to sales data published by Kantar Worldpanel, UK supermarket sales rose by 0.1% year-on-year, the same rate as in the preceding 12-week period. Kantar said this was a positive performance for the overall market, as food price deflation remains at 1.5%.

Tesco's sales fell by 1.0% in the period and its market share slipped to 28.3% from 28.6%. That was a sign of stability in comparison to the "historic declines" that the UK's biggest retailer has faced over the past two years, Kantar Director Edward Garner said.

J Sainsbury, down 4.3%, which until last month had been posting consistent periods of sales growth, saw its sales fall by 1.2% and its market share slip to 16.2% from 16.5%.

Garner said this was due to a decline in multi-pack sales, as the supermarket shifts its promotional emphasis from multi-pack deals to straightforward price cuts.

Sainsbury's was joined by Wolseley, a distributor of heating and plumbing products and a supplier of builders' products, in the list of heaviest fallers in the blue-chip index.

Wolseley slumped by 5.7% after the company said revenue growth has slowed since the end of April, following a third quarter performance dulled by weak European businesses.

In the weeks since the third quarter ended on April 30, Wolseley said, like-for-like revenue growth has been 1.0%, compared to 2.8% in the prior quarter.

The company pledged to further restructuring in the UK and Europe, meaning the total costs of doing so in the financial year ending in July will rise to GBP20.0 million from the GBP15.0 million previously expected.

The news comes less than a week after Wolseley abandoned plans to hire defence and aerospace group Cobham's chief financial officer, Simon Nicholls.

That decision was seen by Barclays, Wolseley's broker, as a move to avoid "possible reputational risk" after Cobham in April warned that trading profit in the first quarter was GBP15.0 million, well behind the GBP50.0 million made in the first quarter of 2015.

Following the market close Wednesday FTSE Russell confirmed the changes to come about thanks to the quarterly review of the FTSE indices. Pharmaceutical company Hikma Pharmaceuticals will move back to the FTSE 100, while satellite communications firm Inmarsat will be demoted to the FTSE 250.

On the economic front on Thursday, expect monetary base and foreign investment data for stocks and bonds in Japan at 0050 BST. UK PMI construction data are due at 0930 BST, followed by EU producer price index data at 1000 BST.

The European Central Bank is set to take centre stage at 1245 BST. The ECB is expected to remain in "wait and see mode" at its June meeting on Thursday as the Governing Council continues to assess the myriad policy interventions made in March. The ECB's policy decision will be followed by a press conference with ECB President Mario Draghi at 1330 BST.

Draghi is one of several central bankers set to capture the attention of markets on Thursday, with FOMC Member Powell speaking at 1335 BST and Bank of England Governor Mark Carney at 1400 BST.

In the US, ADP Employment Change data comes at 1315 BST, followed by jobless claims data at 1330 BST. EIA natural gas storage and crude oil stocks data come at 1530 BST and 1600 BST.

In the corporate calendar, Johnson Matthey publishes annual results on Thursday, with analysts widely viewing the 2016 financial year as an "off" period for the company, after which robust growth will resume thanks to increasingly stringent emissions regulations on motor vehicles.

The FTSE 100-listed platinum and chemicals company, which makes emission control systems, catalysts and fine chemicals, affirmed guidance for the financial year that ended in March in its third-quarter trading update in February.

But Johnson Matthey said macroeconomic factors, particularly the low oil price, the slowdown of economic growth in China and lower platinum prices, had continued to prove a challenge and were likely to remain an issue in the final quarter.

RPC Group also published full-year earnings.

By Samuel Agini; samagini@alliancenews.com; @SamuelAgini

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