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UK stocks end mixed as even positive earnings can’t translate into gains

Published: 17:12 26 Jul 2016 BST

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UK stocks closed mixed on Tuesday, with blue-chip stocks gaining but mid-caps waning.

The FTSE100 index was up 0.2% at 6,724, having been fairly much range bound 6,650 to 6,750 area since July 11.

The FTSE250 index was down 0.1% at 17,069, having spent much of the session higher, and just above pre-Brexit levels.

The FTSE 250 constituent near the bottom of the pile was hedge fund Man Group (LON:EMG) which closed down 3.7% at 117.93p, having reported a slump in pre-tax profit and funds under management for the first half amid tough trading conditions.

For the six months ended 30 June, statutory pre-tax profit tumbled to $55mln from $163m in the same period last year, while funds under management declined to $76.4bn from $78.8bn. Meanwhile, performance fees fell to $42mln from $231mln and the company said the first half of the year had been particularly challenging for the global investment management industry amid highly volatile financial markets. Still, Man said it had net inflows of $1bn versus net outflows of $2.6bn in the first half of 2015, a period many saw as critical for the group.

On the flip side, one mid-cap doing very well was Virgin Money (LON:VM.. The stock closed up 7.7% at 263.43p after reporting strong growth during the first half of the year, beating many analyst's expectations, but with the economic outlook more cautious the company slightly softened its net interest margin (NIM) guidance.

Total income in the half-year to 30 June was up 14% to £290mln, with adjusted pre-tax profit increasing 53% to £102m. This was thanks to the underlying return on tangible equity increasing by 2.7 percentage points to 12.2% versus the prior year as the cost-to-income ratio reduced by almost 10 points to 58.8%. The board declared an interim dividend of 1.6p per share.

Another company faring well on the balance sheet – but not on the trading floor - on Tuesday was UK-listed specialty chemicals maker Croda International PLC (LON:CRDA), which gave a bullish outlook despite the uncertainty caused by Brexit.

Although midcaps don’t fare too well from a weaker pound, Croda is one example which has been lapping it up precisely because most of its sales are outside of the UK. The FTSE-250 group, whose products range from lipstick ingredients to additives for crop fungicides, posted a 7.8% rise in half-year sales to £608.7mln.

Sterling has depreciated 10% following Britain’s vote to leave the EU on June 23. Stripping out the currency effect, adjusted pre-tax profit grew 6.3 per cent with sales up 2.1%. More than 95% of Croda’s sales and four-fifths of its production are outside the UK.

Nevertheless, Croda shares ended down 1.1% at 3,286.31p.

Elsewhere, data was not altogether conducive to the market either.

Lending to UK businesses dropped in June for the first time this year, according to figures from the British Bankers’ Association (BBA), although the trade organisation for Britain’s financial sector highlights that this is only one month’s data and it “cannot be associated entirely with the Brexit vote”.

Meanwhile, indicating just how much government bonds are back in vogue post-Brexit, today the UK sold £2.5bn of 50-year inflation-linked debt at a record low yield. The syndicated sale achieved a negative real yield of 1.32%.

One view making the rounds is that the Bank of England could cut interest rates in early August despite sterling weakening since the Brexit vote. Normally a weaker pound leads to a rate hike, which stabilises the currency and cools the economic stimulus that a weaker pound offers to exports.

However, Bank of England policymaker Martin Weale on Tuesday shifted his stance in the wake of weak UK economic data to back central bank action. Speaking to the Financial Times newspaper, Weale said he sees the economic outlook differently following Friday's disappointing July PMI data, which saw the UK economy fall at its steepest rate since 2009. Weale did not state explicitly if he would back a rate cut when the central bank announces its next policy decision on Thursday week. However, he said that Friday's PMI were "a lot worse than I had thought". 

That was a trigger for a further sterling sell-off on Tuesday. And the prospect that a falling pound could soon be joined by lower credit signals just how concerned UK policymakers are about the effects of the Brexit vote last month.

On a happier note, the FTSE AIM 100 Index closed up 0.1% at 3,560 and the FTSE AIM All-Share Index added 0.2% to 746.

London’s gainers Totalled 31%, losers 31% and unchanged were 38%.

The top gainer was Bagir Group (LON:BAGR) up 106.7% to 7.75p, while the main faller was Lead All (LON:LEAL), fown 32.7% to 0.925p.


Midsession

London blue-chips built modestly on gains on Tuesday as the falling pound raised the prospect of a UK interest rate cut.

The FTSE 100 Index rose 13.10 points to 6723.23 as the pound descended 0.07% against the dollar to US$1.3131, making UK exports cheaper.

The UK-centric FTSE 250 also brushed off a loss of nearly 50 points to stand 5.1 points ahead at 17096.08.

Alexandra Russell-Oliver at Caxton FX noted that Bank of England monetary policy committee member Martin Weale said he was more likely to vote for stimulus after last Friday's dire manufacturing PMI data.

"Those likely to vote for stimulus next week include Vlieghe, Haldane and Weale, while Governor Carney has previously said that in his view stimulus this summer would likely be appropriate," Russell-Oliver said.

The price of a barrel of Brent crude fell 0.95% to US$44.30 while West Texas Intermediate (WTI) dropped 1.3% to US$42.56 a barrel.

London Capital Group said oil slipped below its 100-day moving average on the downside for the first time since April and short positions were gaining further momentum for a fresh attempt towards the US$40 level.

LCG analyst Ipek Ozkardeskaya said: "Investors see increasing value in the pound’s depreciation, as UK companies become gradually more cost efficient and could be interesting M&A targets for foreign investors."

In small-caps, Sunrise Resources Plc (LON:SRES) brightened 13.5% to 0.21p as it found significant bedrock copper-gold mineralisation in trenching at its Garfield Project in Nevada in the US.

Baron Oil PLC (LON:BOIL) spurted 37.5% to 0.55p on news that Peru had signed a supreme decree to assign a 30% interest in block Z-34 from Baron's subsidiary Gold Oil Peru SAC to Union Oil and Gas Group under the terms of a farm-in agreement of April 29, 2013.

Baron's chairman Bill Colvin said: "The eventual assignment will unblock the path to new activity on Z-34, as well as providing a cash injection to Baron."

Public sector e-commerce system provider Cloudbuy PLC (LON:CBUY) was also up about 16.4% to 8p after rising 47% on Monday, although a lack of news from the company left investors none the wiser.

Bluebird Merchant Ventures Limited (LON:BMV) ticked up 29.4% to 2.75p as the Philippine focused copper concentrate company updated on metallurgical tests and operational progress.

Meanwhile, Harvest Minerals Limited (LON:HMI) backtracked 9.3% to 4.88p as investors were seemingly unimpressed by a resource estimate from its Arapuá fertiliser project in Minas Gerais state, Brazil.

Investors appeared similarly underwhelmed by China New Energy Ltd's (LON:CNEL) signing of an investment promotional and protection agreement between Sunbird Bioenergy Africa Limited and the Zambian government.

Shares fell 8.7% to 1.58p as the bioenergy engineering group said there were a number of other project milestones to be concluded before it could do a deal with Sunbird to begin building the Zambian project.

The Footsie top riser was Provident Financial PLC (LON:PFG)  after reporting higher first-half profits. Shares rose 4.9% to 2727p.

BP Plc (LON:BP.) was among the biggest losers, down 2.4% to 429.9p, as it posted a US$2.2bn loss in the second quarter of 2016, thanks largely to a US$5.2bn charge for the 2010 Gulf of Mexico oil spill.

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