London’s FTSE 100 index closed lower on Monday – after rallying at the start of the session to its highest level in 11 months.
The damp squib ending saw the blue-chip ticker down 0.8%, or 55 points, at 6,522. But for an hour of trading the index had been in positive territory and hit 6,612 – its highest level since early August 2015.
It had been a stellar “brush off Brexit” start to the week, with the FTSE 100 climbing in spite of bank stocks flagging and the mid-cap FTSE 250 index lower.
Commentators pointed out that the FTSE 100 was not the best benchmark given the uncertainties around Britain’s “Brexit” referendum to quit the European Union back in June. That’s because most of the top 100 companies are heavily reliant upon revenue outside of the UK and even outside of the EU.
The domestically-focused FTSE 250 on the other hand was down a hefty 2.1%, or 348 points, at 16,116 on Monday. It too had a brief flirt with positive territory at the start of the session, before sliding throughout the course of the day. In many ways traders were only too pleased to see 430pm arrive as the market just kept sinking further like it was on a programme trade.
Much of the downbeat mood came from a clutch of data which showed investors had baled out of UK equity and property pooled funds up to the end of May and continued the trend into and beyond the Brexit vote on June 23.
Brokers at Investec downgraded bank HSBC (LON: HSBA) after seeing the stock as abnormally overvalued. That downgrade certainly did the banking sector no favours on Monday.
Ian Gordon, analyst at Investec said HSBC was downgraded to a Sell from a Hold and target price lowered to 425p from 450p.
“HSBC shares have risen by 3% while the FTSE 100 index is up 4%. By contrast, UK domestic peers, Lloyds (Buy) and Barclays (Hold) are both down by 25%. Under Investec Economics’ (revised) macro scenario, we struggle to rationalise these relative moves,” Gordon said.
“We continue to recognise HSBC’s defensive credentials. However, we have made further downgrades to our EPS forecasts (in US dollar terms) of 8-12% through 2016-18e. These primarily reflect the impact of our expectation of a cut in UK interest rates of at least 25bps – probably in August, possibly sooner.”
A rate cut is seen as hurting all the UK banks. HSBC shares ended down 1.3% at 463.76p.
But the general mood for the UK economy and the bourse were negative anyway, after ratings agency S&P said it predicted the UK will “barely escape a full-fledged recession” as a result of Brexit and will suffer some hefty blows to economic growth.
The S&P said Brexit will cause a 1.2 percentage point drag on economic growth in 2016 and a 1.0 percentage point hit in 2018. That takes the 2016 growth forecast to 1.5%, and the 2017 forecast to 0.9%.
Moneysupermarket.com Group PLC (LON:MONY) shares tanked 11% to 244.68p on Monday - their biggest one-day fall in three years – after brokers at Barclays downgraded their recommendation on the stock and warned of “a forthcoming expected recession in the UK”, fuelled by concerns over Brexit.
But if mid-caps had a bad day, The FTSE AIM 100 Index ended down a more moderate 0.1% at 3,399, while the FTSE AIM All-Share Index staged gains of 0.05% to 713.
Across the London bourse only 26% of stocks gained, while 39% lost and 35% were unchanged.
The top gainer was industrial engineer TP (LON:TPG) which rose by 35.7% to 4.75p after the company said its TPG Maritime unit had landed a £27.8mln contract from the UK’s Ministry of Defence.
The biggest faller was equity fund Tiger Resource (LON:TIR) which fell by a third exactly to 0.4p on no specific published news, but may have been a victim of the data from the Investment Association showing that funds under management fell 2.8% in the 12 months to the end of May.
Meanwhile, Standard Life announced it had suspended dealing in its UK Real Estate fund from midday today, following a rapid increase in redemption requests as a result of the Brexit vote.
Investors won’t be able to buy or sell units in the fund until further notice, while the managers look to raise cash by selling off some of their portfolios.
Standard Life has taken this action in order to protect investors who wish to remain in the fund, who could otherwise be negatively affected by fund liquidations. The move follows downward price adjustments across the sector, and may be followed by similar actions by other funds in the sector.
"Property funds are clearly under pressure as a result of the Brexit vote, and we could now see a new wave of investors being unable to liquidate their property funds quickly, which we last witnessed during the financial crisis," commented Laith Khalaf, Senior Analyst, at Hargreaves Lansdown.
Volumes were lower than normal, on account of the close of US markets on Monday for the July 4 Independence Day celebrations.
Open
London's top-flight shares got off to a positive start on Monday but the second tier was down as EU referendum fears continued to weigh.
The FTSE 100 Index, which is largely made up of international companies with limited exposure to the UK, rose 21.61 points to 6599.44. But the FTSE 250 Index fell 25.3 points to 16440.19.
The biggest risers were precious metal miners Fresnillo (LON:FRES) and Randgold Resources (LON:RRS), up nearly 8% and 4% respectively, as investors sought cover in gold.
British Airways and Iberia owner IAG (LON:IAG) was the biggest loser, flying 2.2% lower to 372.8p.
Preview at 6.50am
The resurgence of the FTSE 100 is set to continue, albeit not at the pace seen last week.
According to spread betters the index of blue-chip shares is set to open 14 points to the good at 6,591.83 on what’s likely to be quieter trading session with US closed for business to celebrate Independence Day.
Down under, Australia’s the general election failed to produce a clear winner, though ASX seemed unperturbed by the outcome as it rose 0.2%. That said, the major banking stocks were hit.
In Asia the markets there continued to regain their poise after the initial turmoil caused by the Brexit vote.
One commentator said investors were taking stock of the situation before the UK uncouples from Europe – a process that may have further global ramifications.
Whatever the reason share indexes across the region clawed back early losses with Japan’s Nikkei 225 up 0.5%, the Shanghai Composite ahead 1.7% and Hong Kong’s Hang Seng adding 1.5%.
Back in Britain, the corporate will be dominated this week by the housebuilders with Persimmon and Bovis due to report.
Marks & Spencer’s update on Thursday will be closely followed with new chief executive Steve Rowe is facing pressure to turn around the performance of the business after predecessor Marc Bolland failed.
*Brent crude 2 cents a barrel higher at US$50.37.
*Gold US$10.20 higher at US$1,339 per ounce.
*Pound worth US$1.33 against the dollar.
City Pages
*Shareholders will today vote on a German takeover of the London Stock Exchange as opposition to the deal gathers pace – All papers.
*The Saudi Arabian economy slowed to its lowest growth in three years under the weight of its oil policy. The price of oil has tumbled in the past two years as Saudi Arabia and its Gulf allies have pumped at record levels to dispel higher-cost competition from the United States – Times.
*A US$20 billion project to develop the world’s biggest untapped deposit of iron ore has been shelved by Rio Tinto, in the latest twist in a long-running and contentious saga – Times.
*Billions of pounds of European funding for UK clean energy projects including offshore wind farms as well as universities and other big infrastructure schemes have been jeopardised by Britain’s vote to quit the EU – Times.
*Bank of America is close to calling off the sale of its £7bn credit card operations in the UK after the country’s vote to leave the EU curtailed bidders’ appetite for the business – FT.
*Tesla Motors has missed its quarterly vehicle delivery targets for the third quarter in a row, as the US electric carmaker continues to struggle with the production of its Model X crossover sport utility vehicle, introduced late last year – FT.
*Another 20 banks are in talks with the Bank of England about receiving a licence to launch in Britain, as the wave of new competition in the industry shows no signs of slowing down – Telegraph.