LONDON MARKET MIDDAY: Commodity Stocks Weigh As Brexit Fears Hit Pound

LONDON (Alliance News) - UK shares were lower Wednesday midday, with strong trading from housebuilders insufficient to counteract a fall in commodity-related stocks, while the pound continued to be hobbled by uncertainty over the 'Brexit' referendum.

The FTSE 100 index was down 1.6%, or 94.07 points, at 5,868.24. The mid-cap FTSE 250 was down 0.7% at 16,111.05, and the AIM All-Share down 0.3% at 686.71. In Europe, the CAC 40 in Paris was down 2.1%, and the DAX 30 in Frankfurt down 2.3%.

Miners were still being hit by the read-across from the dividend cut announced by BHP Billiton on Tuesday, when the FTSE 350 Mining sector index dropped 3.1%. The mining index was down another 5.5% Wednesday, and the FTSE 100's four worst performers were Glencore, down 8.2%, BHP, down 8.0%, Anglo American, down 7.4% and Antofagasta, down 5.1%.

Meanwhile, shares of oil and gas producers were dragged down by a fall in the crude price after Iran and Saudi Arabia both said oil production cuts are unlikely.

On Tuesday, Iran and Saudi Arabia ruled out a deal by major producers to cut oil output, and data from the American Petroleum Institute showed a further build in crude stockpiles, weighing on oil prices. The API's weekly crude oil stocks rose by 7.1 million barrels, having declined by 3.3 million barrels last week.

Furthermore, Organization of the Petroleum Exporting Countries Secretary General Abdalla Salem El-Badri blamed US and Canadian oil companies for the global supply glut that has dragged down crude oil prices. "You can't invest in new production and then expect OPEC to cut production," he said at the annual CERA conference in Houston.

"I don't know how we are going to live together," El-Badri said of OPEC's relationship with non-OPEC producers.

OPEC member Saudi Arabia and Russia have proposed to freeze output at January levels, but analysts say a significant reduction in output is needed to alleviate the global supply glut.

Brent oil made an attempt on Tuesday to rise above the USD35 line, but declined sharply instead, priced at USD33.22 a barrel at the London equities close. The North Sea benchmark was falling further on Wednesday, quoted at USD32.59 at midday.

US benchmark West Texas Intermediate was again flirting with the USD30 line, quoted at USD30.82 a barrel at midday in London.

Investor will keep a close eye on US Energy Information Administration's latest crude oil stocks data, due at 1530 GMT.

BP shares were down 2.8%, Royal Dutch Shell 'A' shares down 2.6% and Shell 'B' shares down 3.0%. In the FTSE 250, Tullow Oil was down 5.0%.

However, oilfield services company Petrofac was performing better, with its shares up 4.4%. The company confirmed expectations that the loss booked against the Laggan-Tormore project in the UK North Sea hampered results, but stuck to its commitment to maintain its dividend.

"We faced up to the exceptional challenges we encountered and honoured our commitment to our client. With the plant now successfully operational, these issues are finally behind us," said Chief Executive Ayman Asfari. Petrofac kept its dividend flat in 2015 at 65.80 cents, after it committed to that payout in late 2015

Housebuilders Persimmon and Barratt Developments were up 1.9% and 1.2%, respectively.

UBS and Numis upgraded Persimmon to Buy and Hold, respectively, after the group announced on Tuesday an acceleration of its capital returns programme, following a very strong year for the UK housebuilding industry. The housebuilder said it will return 110.0 pence per share to shareholders, a huge rise on the 10.0p per share it had been planning previously.

Barratt Developments said on Wednesday that pretax profit surged by 40% in the first half of its financial year to December 31, after it sold more houses at higher prices, which appears to be continuing into its second half.

The housebuilder posted pretax profit of GBP295.0 million, up from GBP210.2 million for the first half of its previous financial year, whilst revenue was boosted in the half to GBP1.88 billion from GBP1.58 billion, up 19%. Barratt announced an interim dividend of 6.0 pence per share, up from 4.8 pence per share the previous year. Its peer Berkeley Group Holdings was also up 1.2%.

Other housebuilders also were higher, with Berkeley Group Holdings up 0.7% and Taylor Wimpey, up 0.2%, after data from the British Bankers' Association showed the UK mortgage approvals increased to the highest level in nearly two years in January.

The number of mortgages approved for house purchases increased to 47,509 in January from 43,660 in December. This was the highest since February 2014 and well above the expected level of 45,000.

The pound was trading at lows it hasn't seen since March 2009, hit by the uncertainty over the outcome of the 'Brexit' referendum, scheduled for June 23.

"Warnings from a variety of sources, including HSBC Holdings, [WPP Chief Executive] Martin Sorrell, Airbus and hedge-fund Man Group, about the pound-plaguing, growth-sapping issues the UK would suffer if the 'out' vote prevails...have only exacerbated the nascent jitters that appeared during yesterday's trading," said Spreadex analyst Connor Campbell.

Sterling was quoted at USD1.3889 at midday, having stood at USD1.4082 at the close on Tuesday. If the pound were to go below USD1.3500 it would be exploring depths not seen since 1985.

Bank of England Governor Mark Carney told UK lawmakers on Tuesday that uncertainty over the outcome of UK referendum to decide whether to remain in the EU is weighing on the exchange rate.

Carney said that the bank is ready to loosen monetary policy, including cutting interest rates towards zero and increasing its bond buying programme to stimulate the UK economy. However, the BOE's Governor dismissed the idea of negative interest rates, such as implemented by the European Central Bank and the Bank of Japan, saying the Monetary Policy Committee has "absolutely no intention" of taking such a step.

Stocks in New York were called for a lower open, with the Dow Jones Industrial Average and the S&P 500 seen down 0.7% and the Nasdaq 100 pointed down 0.9%.

Also in the US economic calendar, flash readings of US Markit services and composite purchasing managers' indexes are both at 1445 GMT, while new home sales are at 1500 GMT.

Elsewhere on the London Stock Exchange, Standard Chartered was down 4.6% after Merrill Lynch downgraded the emerging markets focused bank to Neutral from Buy following its 2015 results on Tuesday.

Burberry Group was down 4.7%. The fashion house's peer Hugo Boss issued a profit warning on Tuesday, which according to Liberum analyst Tom Gadsby highlighted a challenging market environment in the US and China supporting its pessimistic view for London-listed Burberry.

Mid-cap support service and construction company Interserve was up 2.1%. Interserve increased its full-year dividend after reporting a significant rise in profit in 2015, but said it does not expect to experience any further growth until 2017.

Interserve reported a 28% lift in pretax profit in 2015 to GBP79.5 million from GBP61.9 million in 2014, as revenue increased 10% to GBP3.62 billion from GBP3.30 billion. Interserve upped its dividend by 6% to 24.3 pence in 2015 compared to the 23.0 pence paid last year.

By Daniel Ruiz; danielruiz@alliancenews.com

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