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UK shares dragged lower by oil and banking stocks

Published: 18:35 02 Aug 2016 BST

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London stocks began the Tuesday session in the red and never recovered, as oil and banking stocks dragged the blue-chip ticker lower.

The FTSE 100 index was down 48.55 points, or 0.73%, at 6,645, with Barclays (LON:BARC) falling 3.6% to 146.03p and RBS (LON:RBS) falling by 1.8% to 185.71p.

Sentiment in the banking sector was hit by news from Germany's Commerzbank (LON:CZB), which saw its shares fall 7.6% to EUR5.25, after warning of lower profits this year.

But there was more glum news for the sector from Italy where a banking crisis looms. Shares in banking behemoth UniCredit SpA (BIT:UCG) fell by 7.2% to EUR1.84 on Tuesday. On Monday, investors dumped UniCredit stock after stress tests issued Friday prompted worries over the firm's stability in a downturn.

The selling frenzy had triggered a temporary trading freeze.

Italy's Banca Monte dei Paschi di Siena (BIT:BMPS), the world’s oldest surviving bank and third largest in the country, came out as the weakest firm in the European stress tests, which are designed to show how banks would cope with severe economic conditions. It’s shares lost a further 16.1% to EUR0.26 on Tuesday.

The banking sector has endured a bad start to the month, as typified by European banks in the United States too. Read more.

Oil stocks like BP (LON:BP. and Anglo-Dutch Shell (LON:RDSB) had a rough session as oil prices continued to fall beneath $40 a barrel in the United States.

BP closed 0.9% lower at 418.34p and Shell ended down 1.3% at 1,926.31p.

The European oil benchmark, Brent Crude, was down 1.2% at $41.63.

The construction industry has had a poor start to the month too, and Travis Perkins (LON:TPK) shares slid 2.9% to 1,499.70p after Brexit "uncertainty" hit demand, the company said.

The builders' merchant said it had experienced "weaker demand in the run up to and immediately following the referendum".

The general market malaise following the Brexit vote in June moved one investor to demand the Bank of England throws everything at the economy when it meets to set rates on Thursday.

“The BoE should throw the kitchen sink at the problem: the worst thing that could happen now is the stimulus does not work, so better to do too much”, said Robert Wood, analyst at Bank of America Merrill Lynch.

The call came on the day that data revealed retail investors pulled £3.5bn out of UK investment funds in June. The Investment Association data suggested the drop was way steeper than the worst month of withdrawals during the financial crisis, when investors whipped out £561mln in January 2008.

It was even worse than following the collapse of Lehman Brothers, when investors pulled £493mln out of UK investment funds in October 2008, notes Hargreaves Lansdown.

As the Remain camp was largely expected to win Britain’s EU referendum poll on June 23, the withdrawals appear to have occurred in the final week of that month.

Mid-caps had a dull day too, the FTSE 250 index closing down 0.4% at 17,063.

As has been part of the course in the past week, poor show by blue-chip and mid-cap stocks does not translates into the same for the AIM-listed players.

The FTSE AIM 100 Index edged up 0.05% to 3,630. However, the wheels came off for the FTSE AIM All-Share Index, closing down 0.07% at 758.

London’s gainers were slim at 22% of the bourse, while losers and unchanged matched at 39%.

Top gainer was Proton Power (LON:PPS), up 64% to 5.75p after the company announced a restructuring plan and offered a rosy revenue outlook.

 The biggest faller was Energiser (LON:ENGI), down 41% to 1.25p on no fresh news.


Midsession

Oil majors dragged down blue-chip shares on Tuesday despite a slight recovery in crude prices, although the market had edged back somewhat by lunchtime.

Shares in BP PLC (LON:BP.) dropped 0.3% to 417.05p and Royal Dutch Shell plc  (LON:RDSB) leaked 1.4% to 1923p.

The price of a barrel of Brent crude retreated to just above US$42 before rallying to stand  1.8% up at US$42.91 at lunchtime. A barrel of US light crude rose back above the US$40 mark to stand 1.3% ahead at US$40.60.

The prospect of a UK recession undermined shares after construction activity in July hit its lowest level since June 2009.

The FTSE 100 Index recovered from a 50-point-plus deficit to stand about 25 points adrift at 6669 after the construction purchasing manager's index from Markit and the Chartered Institute of Purchasing & Supply fell to 45.9 in July from 46 in June.

Economists blamed the drop on uncertainty sparked by the outcome of the EU referendum on June 23.

Markit economist Chris Williamson said: "The data raise the prospect of the economy sliding into decline in the third quarter and entering recession."

Shares in Watchstone Group PLC (LON:WTG), formerly known as Quindell, ticked up 12.75p, or 6%, to 225.75p amid unconfirmed market rumours about potential takeover interest, although the nature and identity of any possible bidders remained a mystery.

Among small-caps, Proton Power Systems Plc (LON:PPS) kept its position as the day’s biggest gainer, up 64.3% at 5.75p, as the fuel cell developer announced board changes and a proposed restructuring.

Omega Diagnostics Group Plc (LON:ODX) also stayed strong, 8.3% ahead at 19.5p, after the allergy, food intolerance and infectious disease specialist won a Scottish Enterprise research and development grant of £1.8mln.

Airport services provider BBA Aviation PLC (LON:BBA) flew 7.9% higher to 253.5p on news of a 56% rise in underlying operating profit to US$149.6mln.

But Braveheart Investment Group plc (LON:BRH) dropped 29.9% to 13.5p as it agreed to sell its 1.25% interest and the 3.75% stake held by Strathclyde Investment Fund, in which it has an 89.3% holding, in mLED Limited to a big US technology company.

Apc Technology Group PLC (LON:APC) fell 13.75% to 8.63p on news that the business improvement technology provider and component distributor raised £1.1mln in a share placing.

Rotork p.l.c. (LON:ROR) backtracked 5.85% to 201.1p as the engineer warned on full-year profits due to increased overheads and pricing pressures.

Back in the top flight, Lloyds Banking Group PLC (LON:LLOY) was among the biggest fallers, down 1.5% to 52.43p after the Financial Conduct Authority extended its planned deadline for payment protection insurance claims by more than a year, potentially forcing banks to earmark more cash for the scandal.

Direct Line Insurance Group PLC (LON:DLG) got a warm reception for its half-year results. The shares were up 11.3% at 395.1p early doors, as the company announced a special interim dividend of 10p.

Shares in builders’ merchant Travis Perkins PLC (LON:TPK) pared losses but were still 7p off at 1537p after it said the EU referendum had affected trading.

Market preview

UK blue-chips are set to resume yesterday’s retreat after a dull showing overnight by Wall Street.

Spread betting quotes point to the FTSE 100 opening at around 6,678, down 16 points from last night’s close.

In the US, the Dow Jones index shed 0.15% at 18,405 and the S&P 500 fell 0.13to 2,170. This afternoon, eyes will be on the US inflation, income and spending data to see whether economic indicators will give some encouragement to the bulls.

Approaching the close of trading, the Nikkei 225 in Tokyo was off 189 points at 16,447 but in Hong Kong the Hang Seng was 238 points to the good at 22,129.

In the UK, it is another busy day in prospect for corporate updates, with bookie Ladbrokes PLC (LON:LAD) and insurer Direct Line Insurance Group (LON:DLG) among the big names to report.

Ladbrokes' interims come after the UK Competition and Markets Authority released its report into the proposed Ladbrokes and Coral mega merger, which said that 350-400 shops would have to be sold to remedy competition concerns in 642 local areas and traders will be keen to hear any update on this.

Irish stockbroker Goodbody said last week: "There is no doubt that the recent Brexit vote and subsequent worries regarding the UK consumer have had an impact on valuation. However, we continue to believe that a merger of Ladbrokes and Coral will drive significant upside from current levels (PT 160p)."

Direct Line is posting interims having previously forecast a hit of up to £140mln from the floods that engulfed northern England earlier this year.

The group expected claims resulting from damage caused by three storms would cost it between £110mln and £140mln.

City broker Numis said last week it expects a decrease for the half year in operating profit before tax to £288mln as reserve releases begin to normalise from recent high levels as well as the £25mln charge for the Flood Re levy.

Analyst Nick Johnson said of more interest will be underwriting margins, particularly for the motor segment where guidance has been for reserve releases to make a smaller contribution than previous years.

Commodities

Gold spot price: -US$2.42 at US$1,350.73 an ounce

Brent crude: +US$0.06 at US$42.20 a barrel

West Texas Intermediate: -US$0.01 at US$40.05 a barrel.

Forex

Sterling: US$1.3196 (+US$0.0022)

City headlines

Strike threat over ‘wholesale privatisation’ of Post Office – The Times

US crude drops below US$40 a barrel – the FT

Ireland calls for EU drug agency to be moved from London to Dublin – The Guardian

Share tips: Tempus in The Times says hold Intertek and Fidessa; sell Trinity Mirror.

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