LONDON MARKET MIDDAY: Brexit Warnings And Oil Price Weigh On FTSE 100

LONDON (Alliance News) - A Treasury report warning of an "immediate and profound" economic shock in the event of a UK vote to leave the European Union put London stock listings on shaky ground midday Monday.

A Treasury analysis of the implications of Brexit, issued by UK Chancellor George Osborne, claimed that the immediate economic shock caused by a Leave vote in the June 23 referendum would then be exacerbated by the negotiations that would have to follow.

The report forecast the UK economy would shrink by least 3.6% in the first half after a Brexit and could deflate by as much as 6.0%.

Osborne warned voters not to inflict a "do it yourself" recession on the nation. He warned the recession which would result from a Brexit could "kill" up to 820,000 jobs, while public sector borrowing would rise by GBP24 billion to GBP39 billion.

The Treasury document also forecast homes in the UK would lose 10% to 18% of their value by 2018 if Britain voted to leave, compared to what they would be worth if the UK voted to stay.

"The FTSE 100 opened slightly lower amid the latest dire economic forecasts for the UK from the Treasury was there to be a Brexit," wrote Jasper Lawler, market analyst at CMC Markets. "Shares recouped opening losses to breakeven within the first hour of trading with Royal Mail as top riser after broker a broker upgrade."

Royal Mail, traded up 3.3%, after RBC Capital upgraded the postal and logistics operator to Sector-Perform from Underperform. Royal Mail's shares declined 3.9% on Thursday last week after it posted a sharp fall in annual pretax profit, as the recently privatised company continued to cut costs to improve margins within an increasingly competitive postal industry.

At midday Monday, the FTSE 100 index traded down 0.3%, or 16.79 points, at 6,139.53. The blue-chip index declined through the mid to late morning, tracking losses in crude oil prices. At midday Brent oil, traded at USD48.14 a barrel, below the USD48.73 a barrel seen at the London stock market close on Friday.

This weighed on the shares of oil giants Royal Dutch Shell 'A', down 1.3%, and BP, down 0.9%.

Less affected, the mid-cap FTSE 250 index was up 0.3% at 16,965.93, and the AIM All-Share was up 0.4% at 731.08.

In Europe, the CAC 40 in Paris was down 0.8%, while the DAX 30 in Frankfurt was down 0.6%.

The euro weakened after data showed that the eurozone private sector growth weakened to a 16-month low in May.

Financial information services company Markit said that the eurozone flash composite output index slipped unexpectedly to 52.9 in May, a 16-month low, from 53.0 in April. It was forecast to rise to 53.2.

The manufacturing PMI slipped to 51.5 in May from 51.7 in the prior month. Economists had forecast the score to improve to 51.9. The services PMI score held steady at 53.1, against expectations for a rise to 53.3.

The euro eased back to USD1.1205 against the dollar by midday, having traded at USD1.2220 prior to the data.

Ahead of the market open on Wall Street, futures pointed the DJIA, S&P 500 and Nasdaq 100 all down 0.1%.

Elsewhere in corporate news, London-listed chipmaker ARM Holdings traded up 1.7%, boosted by reports that US tech giant Apple has warned suppliers that orders for the new iPhone 7 will be higher than expected.

Citing the Economic Daily, Bloomberg said Apple asked suppliers to get ready for between 72 million to 78 million unit orders of the iPhone 7 by the end of 2016, the highest target in about two years. The Economic Daily cited unidentified suppliers it surveyed in China.

The new iPhone 7 is likely to be released in September. New York-listed Apple ended up 1.1% on Friday.

Satellite communications company Inmarsat led the fallers in the FTSE 100, down 3.6% after it was downgraded to Equal Weight from Overweight by Morgan Stanley. Meanwhile ICAP was the worst FTSE 250 performer, down 5.5%, after the interdealer broker was downgraded to Neutral from Outperform by Credit Suisse.

Mitie Group traded up 2.8% after the outsourcer said pretax profit more than doubled in its recent financial year thanks to lower one-off costs, as the group launched a share buyback.

The company, which handles facilities management and advises clients on how to cut energy usage, said its pretax profit more than doubled in the recent year to GBP96.8 million from GBP41.5 million the year earlier, mainly due lower one-off costs.

However, Mitie's underlying profit only edged higher in the year to the end of March, and its order book for the new year is slightly weaker than a year prior.

Mitie declared a final dividend of 6.7 pence per share, up from 6.5p, taking its total payout for the year up 3.4% to 12.1p from 11.7p. In addition, the company announced a GBP20.0 million share buyback to return cash to shareholders.

In the AIM All-Share, DDD Group shares tumbled 69%, making it the biggest faller. The imaging and 3D services company proposed cancelling its listing on AIM as its pretax loss widened on a big fall in revenue.

DDD said shareholders will vote on its proposed AIM cancellation on June 29 at the company's annual general meeting. Chief Executive Chris Yewdall said the costs related to its listing on AIM had become "excessive" for a company of DDD's size and said the listing does not help the group generate any more revenue or profit.

The announcement came as DDD said its pretax loss for the year to the end of December was USD3.1 million, compared to USD1.7 million a year earlier, caused primarily by revenue declining to USD706,000 from USD2.5 million.

Still ahead in the economic calendar, John Williams, president of the Federal Reserve Bank of San Francisco, will make a speech at 1300 BST. US Markit manufacturing PMI is at 1445 BST, just before eurozone consumer confidence at 1500 BST.

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

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