LONDON MARKET MIDDAY: Blue Chips Lifted By BoE But Mid-Caps Head South

LONDON (Alliance News) - Stocks in London were mixed Tuesday at midday, with the FTSE 100 returning to the green from a lower open after the Bank of England announced a series of measures to stabilize in the UK financial system following the vote to leave the European Union.

The FTSE 100 had ended down on Monday, ending its post-Brexit rally at four sessions. However, the blue-chip index was rising again Tuesday, up 0.5%, or 33.27 points, at 6,555.53.

However, the more domestically exposed FTSE 250 index of UK mid-caps continued to decline, down 2.5% at 15,713.97. The AIM All-Share was down 0.8% at 708.29.

The Bank of England has repeatedly tried to rebuild investor confidence since the EU referendum, offering liquidity to UK lenders to avoid a credit crunch. This came on top of Governor Mark Carney's hint last week of a summer cut to UK interest rates.

On Tuesday, the BoE lowered its capital buffer requirements for UK banks. The Financial Policy Committee trimmed the countercyclical capital buffer rate to zero from 0.5% of banks' exposure with immediate effect.

The FPC expects to maintain this zero countercyclical capital buffer rate until at least June 2017. It will reduce regulatory capital buffers by GBP5.7 billion.

Furthermore, the FPC judged that risks associated with domestic credit were no longer subdued, and that a number of economic and financial risks are materializing. The FPC strongly expects the central bank to continue to support the real economy, by drawing on buffers as necessary, it said.

The pound recovered from a new 31-year low following the Bank of England report. Sterling hit a low of USD1.3115, but it had recovered some ground by midday, quoted at USD1.3183. The currency stood at USD1.3324 at the London equities close on Monday.

The UK service sector activity growth weakened to match the 38-month low registered in April, survey results from Markit showed.

The Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index dropped to 52.3 in June from 53.5 in May, below expectations of a reading of 52.8. Nevertheless, a reading above 50.0 signals growth in the sector.

"The PMI surveys indicate that the pace of UK economic growth slowed to just 0.2% in the second quarter, with a further loss of momentum in June as Brexit anxiety intensified," said Chris Williamson, chief economist at Markit.

This came a day after the UK construction PMI reading from Markit and the CIPS fell to 46.0 in June, representing shrinkage, from 51.2 in May against economists' expectations of a drop to 50.5.

"Given that the majority of the PMI responses came prior to the referendum, there is reason to believe things are going to get worse in the near term at least. The important thing to note is that while construction shrank heavily, services remains comfortably in growth territory," noted IG analyst Joshua Mahony.

Also released Tuesday, Germany's services sector weakened at the end of the second quarter. The final services PMI dropped to a 13-month low of 53.7 from 55.2 in May. Nonetheless, the reading was above the flash score of 53.2. Meanwhile, the same from France declined to 49.9, in line with flash estimate, from 51.6 in May.

Eurozone retail sales increased for the second straight month in May, figures from Eurostat showed. Retail sales climbed 0.4% month-on-month in May, following a 0.2% rise in April. On a yearly basis, retail sales growth accelerated to 1.6% in May from 1.4% in April. That was below economists' expectations for a 1.7% gain.

Stocks in Europe were lower, with the CAC 40 index in Paris down 1.3% and the DAX 30 in Frankfurt down 1.4%.

In Asian stock markets, the Hang Seng in Hong Kong ended down 1.5%. The Shanghai Composite index closed up 0.6% and the Nikkei 225 index down 0.7%.

Stocks in New York are set to reopen lower Tuesday, following the Independence Day holiday on Monday. The Dow 30 was seen down 0.5%, while both the S&P 500 and the Nasdaq 100 indices were pointed down 0.6%. Still ahead in the economic calendar, US factory orders are at 1500 BST.

Among individual stocks in London, real estate investors were amongst the worst performing stocks again after downgrades by French bank Societe Generale.

Land Securities Group was down 5.0% after SocGen cut its recommendation on the stock to Hold from Buy, British Land was down 4.0%, having received the same downgrade, and Great Portland Estates was down 5.1%, being cut to Sell From Hold.

SocGen said the UK exit from the European Union comes at a time when the property cycle was reversing anyway due to fast-rising speculative supply. While the outcome of this is difficult to predict, SocGen forecasts property prices to fall 25% peak-to-trough.

Meanwhile, Persimmon shares were down 4.3%. The housebuilder sounded a note of caution about the uncertainty caused by the Brexit vote for the UK's new homes market, despite reporting higher house sales at higher prices for the first half. The group said it remains committed to building the new homes across the country that Britain needs, and said it "remains too soon to judge the effect that the result of the EU Referendum will have on the UK new homes market".

Other housebuilders also were trading lower thanks to the Brexit-related cloud of uncertainty over the sector, with Berkeley Group Holdings down 5.0%, Taylor Wimpey down 4.4% and Barratt Developments down 4.5%.

Insurers Legal & General Group and Prudential were down 5.6% and 4.2%, respectively, also hit by broker downgrades. L&G was cut to Hold from Buy by Jefferies, while JPMorgan reduced its stance on Prudential to Underweight from Neutral.

Whitbread was down 3.9%, after Barclays cut its recommendation in the owner of the Premier Inn hotel chain and Costa Coffee shop brand to Underweight from Equal Weight. The bank believes the company's main roadblock on its way to growth will be lower revenue per available room.

In the green, International Consolidates Airlines Group was the biggest blue-chip gainer, up 2.2%, recovering some ground following the fall in the shares on Monday, after an investigation was launched in Spain into IAG's low-cost airline Vueling following chaos at Barcelona airport over the weekend.

Meanwhile, British American Tobacco, up 1.5%, and Imperial Brands, up 0.6%, were benefiting from price target upgrades by US investment bank Goldman Sachs.

By Daniel Ruiz; danielruiz@alliancenews.com

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