Taylor Wimpey Share News (TW.)

LONDON (Alliance News) - London stock indices gave up early morning gains by midday Monday after an indicator of activity in the UK construction industry showed the sector slipped into contraction for the first time in over three years.

The Markit and Chartered Institute of Procurement & Supply's construction purchasing managers' index fell to a seven-year low of 46.0 in June from 51.2 in May. Economists had expected the index to drop to 50.5. Any reading above 50 indicates expansion, while a score below 50 suggests contraction.

Reports from survey respondents widely linked the downturn in business activity to uncertainty in the UK ahead of the June 23 European Union referendum. Just over 80% of survey responses were received before the result was known on June 24.

Markit said the fall in the PMI reading was led by a steep decline in residential building and a reduction in commercial work for the first time since May 2013.

Tim Moore, senior economist at Markit, said trading conditions were always going to be difficult in the run-up to the EU vote as UK construction companies "are at the sharp end of domestic economic uncertainty and jolts to investor sentiment".

"The extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook," Moore said.

David Noble, CEO of CIPS added: "Though the majority of responses, around 80% were received before the Brexit result, the continuing ambiguity and indecision has flung the sector into unknown territory. Firms will likely look towards any remedies the Bank of England and the UK government can offer if the situation worsens post-Brexit."

The PMI reading hurt the pound and housebuilding stocks. Sterling hit a low of USD1.3241 after the data, but rebounded to USD1.3286 by midday. This was above the USD1.3268 seen at the London stock market close on Friday.

In the FTSE 100, Persimmon, down 4.5%, Barratt Developments, down 3.7%, Taylor Wimpey, down 3.7%, and Berkeley Group Holdings, down 3.1%, all were amongst the worst performers in the blue-chip index.

The FTSE 100 was down 0.1%, or 8.51 points, at 6,569.32. While housebuilders weighed on the index, miners were amongst the best performers.

Precious metals miners Fresnillo, up 6.7%, and Randgold Resources, up 4.6%, were the biggest gainers, benefiting from a higher price of gold and silver. Gold traded at USD1,350.64 an ounce at midday London, compared with USD1,337.16 at the London equities close Friday. Meanwhile, silver hit its highest level since July 2014 at USD21.10 an ounce.

The UK domestic-oriented FTSE 250 was down 1.9% at 16,160.48 and the AIM All-Share was slightly lower at 713.16.

In mainland Europe, the French CAC 40 index was down 0.4% and the German DAX 30 was down 0.3%.

Wall Street is closed for US Independence Day.

Marks & Spencer Group was a big faller in the FTSE 100, down 4.2%, after it was downgraded by both Deutsche Bank and Investec to Hold from Buy.

Deutsche said the clothing, homewares and food retailer's recent actions to reposition its underperforming clothing business should lead to a more sustainable position for the brand, but a slower consumer environment, as a result of the Brexit vote, could make such actions challenging to undertake.

Investec said it anticipates a weak first-quarter performance from the retailer when M&S provides a trading update on Thursday, and said it remains too early to quantify the potential impact of a Brexit on M&S profit from slower demand.

Though M&S is better-positioned than prior to the 2008 financial crisis, Investec said it is difficult to see any profit growth within a weaker trading environment.

Clarkson shares hit their lowest level in three years at 1,696.039p after the shipping services provider warned profit in 2016 will be "materially lower" year-on-year as it continues to face challenges in its key markets.

Clarkson said the recent recovery in the oil price has driven the return of some activity in the company's offshore broking division, but it will take some time before a meaningful recovery is seen in the oil and gas industry.

Overall transactions in its broking arm have increased, Clarkson said, but the fall seen in freight rates and asset values has hit revenue. This, combined with quiet capital markets and weak investor confidence, has reduced activity in its financial division. The stock traded down 17% at 1,825.00p, making it the worst performer in the FTSE 250.

Moneysupermarket.com was down 11% after Barclays downgraded its rating on the price comparison site to Equal Weight from Overweight, saying the "layers of uncertainty" on the investment case for the company have been building in the past nine months, notably from increased competition in the price comparison space.

Add to this new concerns raised by the UK's decision to vote to leave the EU, and Barclays said it no longer has confidence on the positive momentum of the group's earnings.

Barclays also slashed its recommendation on Rightmove to Underweight from Overweight, saying that, while the bank is "structurally positive" on the property portal, the Brexit vote changes the company's story in the near term, meaning it is "time to face reality".

Given the uncertainty around house prices and transaction volumes as a result of the Brexit vote, Barclays said Rightmove shares now looks expensive. Rightmove traded down 6.2%.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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