London close: Stocks fall after weak services PMI

London stocks were in the red on Wednesday as a weak report on the UK services sector fuelled bets of an interest rate cut by the Bank of England.

The final Markit/CIPS services PMI fell to 47.4 from 52.3 in June, in line with the 'flash' estimate. This marked the first contraction since December 2012 and the strongest rate of decline since March 2009. A reading below 50 indicates contraction.

The sharp drop seen in services industry activity in July follows Britain’s vote to leave the European Union. The report also comes after weak UK construction and manufacturing PMIs earlier in the week.

David Morrison, senior market strategist at SpreadCo, said: “This was the last piece of major UK data ahead of tomorrow’s Bank of England rate decision. It provides more evidence (if any were needed) that the Bank will want to ease monetary policy further with the consensus view being that it will cut its headline Bank Rate by 25 basis points.

“There’s also an expectation that the Bank will restart its asset purchases. However, there are a range of views here with estimates for additional stimulus ranging from £50 -175bn.”

In the Eurozone, Markit’s final composite PMI – which combines the services and manufacturing sectors – rose to a six-month high in July. The PMI ticked up to 53.2 from 53.1 in June and ahead of the flash estimate of 52.9, signalling growth for 37 successive months. A reading above 50 indicates expansion.

Retail sales in the 19 countries that share the euro were stable in June compared with May, in line with economists’ expectations, according to the latest figures from Eurostat. On the year, Eurozone retail sales increased 1.6%, which was a touch weaker than estimates of a 1.7% jump.

In the US, ADP data showed private sector employment rose by 179,000 jobs last month, beating expectations for a 170,000 jump. It was driven by an increase in mid-sized-business jobs.

The June figure was revised up to show that 176,000 jobs had been added versus a rise of 172,000 in the previous month.

The figures came ahead of Friday's all-important non-farm payrolls report.

Another report showed the US services sector expanded at a sluggish pace last month, albeit faster-than-expected. Markit’s final US business services purchasing managers’ index was unchanged at 51.4 in July, but up from the flash estimate of 50.9, indicating only a very modest expansion. A reading above 50 indicates expansion. Economists had been expecting a reading of 51.0.

Separately, the Institute for Supply Management’s index of non-manufacturing activity fell to 55.5 in July from 56.5 in June, missing expectations for a reading of 56.0.

In corporate news, Standard Chartered shares advanced as the bank returned to profit in the first half after bad loans fell. The lender posted a $394m net profit in the first half following a $3.8bn net loss in the second half.

Other banks were boosted by a 2019 deadline for PPI claims with Barclays, Royal Bank of Scotland and HSBC all up.

Investors were also no doubt pleased with HSBC's news of a $2.5bn share buyback thanks to the sale of the bank's Brazilian business.

Fashion retailer Next was sashaying higher despite a mixed second quarter update, with group sales rising 0.3% on the same period a year ago but retail sales down 3.3%.

Rio Tinto was on the back foot as its first half results showed profits fell to a 12-year low as crumbling commodity prices hit home.

Direct Line snapped the previous day’s rally following its well-received first half results.

Aggreko tumbled after the temporary power provider posted a drop in first half profit and revenue as weak oil prices took their toll on the company.

Market Movers

FTSE 100 (UKX) 6,634.40 -0.17%
FTSE 250 (MCX) 16,997.13 -0.39%
techMARK (TASX) 3,440.47 -0.20%

FTSE 100 - Risers

HSBC Holdings (HSBA) 506.00p 4.81%
Next (NXT) 5,350.00p 4.29%
Standard Chartered (STAN) 614.30p 4.19%
Associated British Foods (ABF) 2,831.00p 4.16%
GKN (GKN) 295.60p 3.21%
Royal Bank of Scotland Group (RBS) 190.60p 2.58%
Barclays (BARC) 148.30p 1.58%
Vodafone Group (VOD) 230.25p 1.45%
Mediclinic International (MDC) 1,059.00p 1.34%
BHP Billiton (BLT) 949.40p 1.28%

FTSE 100 - Fallers

Persimmon (PSN) 1,636.00p -2.73%
British American Tobacco (BATS) 4,703.00p -2.44%
Imperial Brands (IMB) 3,954.50p -2.31%
Direct Line Insurance Group (DLG) 391.00p -2.23%
United Utilities Group (UU.) 983.00p -2.19%
Babcock International Group (BAB) 948.50p -2.07%
Berkeley Group Holdings (The) (BKG) 2,546.00p -2.04%
Taylor Wimpey (TW.) 148.70p -1.91%
Relx plc (REL) 1,407.00p -1.88%
Intu Properties (INTU) 295.20p -1.73%

FTSE 250 - Risers

Laird (LRD) 317.40p 7.52%
Pendragon (PDG) 32.72p 5.75%
William Hill (WMH) 313.10p 3.71%
Amec Foster Wheeler (AMFW) 436.10p 3.19%
PZ Cussons (PZC) 342.10p 3.04%
Virgin Money Holdings (UK) (VM.) 266.90p 2.97%
Cairn Energy (CNE) 176.50p 2.80%
Tullett Prebon (TLPR) 342.10p 2.79%
Mitchells & Butlers (MAB) 243.90p 2.52%
Brown (N.) Group (BWNG) 173.30p 2.42%

FTSE 250 - Fallers

Aggreko (AGK) 1,071.00p -13.00%
Drax Group (DRX) 315.50p -3.99%
Meggitt (MGGT) 406.70p -3.67%
Beazley (BEZ) 388.20p -3.17%
Countryside Properties (CSP) 222.50p -3.09%
Crest Nicholson Holdings (CRST) 403.20p -2.91%
Workspace Group (WKP) 672.00p -2.82%
Millennium & Copthorne Hotels (MLC) 410.00p -2.68%
Hiscox Limited (DI) (HSX) 1,057.00p -2.67%
G4S (GFS) 179.40p -2.66%