LONDON MARKET MIDDAY: Miners Lead Gains As Boris Johnson Backs Off

LONDON (Alliance News) - Stocks in London were in the green Thursday midday, with miners supporting the FTSE 100's gains, as traders watched dramatic UK political developments unfold as they awaited a speech later in the day by Bank of England Governor Marc Carney, who will aim of reassuring market confident.

Following the decision by Prime Minister David Cameron to step down following the UK vote to leave the European Union, Home Secretary Theresa May formally launched her campaign to succeed him Thursday. Justice Secretary Michael Gove also entered the race. In a big shock for many, former London mayor and Leave campaign leader Boris Johnson said he will not stand.

Investors will look to Carney for clues on UK monetary policy following the Brexit vote.

"This speech may go a long way to reassuring investors fearful about the power vacuum in Westminster and the lack of any communication from the Leave campaign since the Brexit vote. Carney's rapid moves to do what it takes to soothe markets is in stark contrast to the delayed and stuttering response by the Bank of England during the financial crisis," said IG analyst Joshua Mahony.

Carney's speech is scheduled to start at 1600 BST. The next Monetary Policy Committee meeting not until July 14.

The UK economy expanded as previously estimated in the first quarter, the third estimate from the Office for National Statistics showed. Gross domestic product grew 0.4% in the first quarter from previous three months, unchanged from the last published estimate.

It was slower than the 0.7% expansion seen in the fourth quarter of 2015. Nonetheless, this was the 13th consecutive quarter of positive growth since first quarter of 2013. On a yearly basis, UK GDP climbed 2.0% as estimated previously in the first quarter.

The pound was at USD1.3443, slightly lower than the USD1.3519 at the equities close Wednesday. Nevertheless, sterling has recovered from its post-Brexit 31-year low of USD1.3118.

Another report from ONS showed that the UK current account gap narrowed to GBP32.6 billion from a revised deficit of GBP34.0 billion in the fourth quarter. The narrowing in the current account deficit was mainly due to a narrowing in the deficits on secondary income and primary income.

The FTSE 100 was up 0.4%, or 23.52 points, at 6,383.58 midday Thursday. The FTSE 250 was up 0.1% at 16,014.71, and the AIM All-Share was up 0.8% at 703.23.

Though stock indices in London have recovered from their declines after the vote, uncertainty remains as the UK government continues to delay invoking Article 50 of the Lisbon Treaty and thereby beginning the process of Brexit, while European leaders call for more urgency.

The negotiation of the UK's exit will be key in calming market nerves, but German Chancellor Angela Merkel said the UK will not receive any special favours and the negotiations will not be a cherry-picking exercise. She said the the UK could enjoy access to the single market only if it accepted the four basic European freedoms, which include free movement of people.

Stocks in Europe were higher, with the CAC 40 index in Paris up 0.5% and the DAX 30 in Frankfurt up 0.1%. The euro was standing at USD1.1139 versus USD1.1111 at the close Wednesday. The accounts from the last European Central Bank policy meeting are due at 1230 BST.

Eurozone inflation turned positive in June as the pace of decline in energy prices slowed further, flash data from Eurostat. Consumer prices edged up 0.1% in June from prior year, compared to a 0.1% fall in May. Prices increased for the first time in five months. Prices were expected to remain flat in June.

Core inflation, which excludes energy, food, alcohol and tobacco, rose to 0.9% in June from 0.8% in May. This was the fastest rate since March 2016. Economists had forecast core inflation to remain at 0.8%.

In Asia, the Japanese Nikkei 225 index closed up 0.1%, the Shanghai Composite ended down 0.1% and the Hang Seng in Hong Kong rose 1.8%.

In New York, both the Dow 30 and the S&P 500 indices are called up 0.3%, while the Nasdaq 100 is seen up 0.2%. Ahead in the US economic calendar, initial and continuing jobless claims are at 1330 BST, while the Chicago purchasing managers' index is at 1445 BST.

Among individual stocks in London, 3i Group was the biggest blue-chip gainer, up 6.6%. The private equity provider said it has increased the book value of its investment in Action, the Benelux-based non-food retailer, following strong trading and a number of approaches the 3i has received in respect of the investment.

Given the third-party interest in the business and continued growth, 3i said it has increased the book value of its investment in Action to GBP1.46 billion from GBP902.0 million at the end of March. Though 3i said it remains actively engaged in developing Action and is not intending to sell or float the business in the near term, SocGen analyst Michael Sanderson believes actions will be taken in the medium future.

"While there is no detail on the timings of any realisation activity in the announcement, we anticipate some form of realisation event to occur in 2018 in line with the requirements of 3i's limited partner co-investors," said Sanderson.

Miners were among the best performers in the FTSE 100, with Glencore up 5.0%, Anglo American up 4.9% and Antofagasta up 4.5%.

"Mining stocks are holding up quite well despite reports that Chinese authorities could look to let the yuan weaken to CNY6.80 [per dollar] in an attempt to cushion the effects of a slowing economy," said CMC Markets chief market analyst Michael Hewson.

"While commodity prices appear to be holding up well and may well have found a base there is a concern about a slowing global economy, and this has been magnified by events of the last week or so," Hewson added. The Chinese yuan was quoted at CNY6.63 per dollar at midday.

Oil major BP was another gainer, up 1.2%, after being upgraded to Overweight from Equal Weight by Morgan Stanley.

In the red, Royal Bank of Scotland Group was down 5.4%. The bank was downgraded to Equal Weight from Overweight by Morgan Stanley.

Meanwhile, builders' merchant Travis Perkins was down 4.5% after Berenberg downgraded it to Hold from Buy. Travis Perkins's long-term strategy is sound, Berenberg said, but the bank is cautious on the effect of Brexit uncertainty on UK consumer sentiment and the housing market.

In the FTSE 250, Zoopla Property Group was down 6.4%. The property portal's share price decline in the wake of the Brexit vote last week has further to go, says Panmure Gordon, which slashed its rating on the property buying portal to Sell from Buy.

Following the Leave vote by Britain on Friday, Zoopla's share price had fallen by 22% but had rebounded on Tuesday and Wednesday. Panmure analyst Jonathan Helliwell believes there is further to go on the downside for Zoopla shares, as its estate agent customers now face a prolonged period of market uncertainty and lower volumes.

By Daniel Ruiz; danielruiz@alliancenews.com

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