London midday: Banks lead equities lower ahead of expected interest rate cut

London stocks fell on Tuesday as banking shares declined on the prospect of an interest rate cut by the Bank of England later in the week.

The BoE is widely expected to cut interest rates at Thursday’s policy meeting after assessing the impact of the UK’s vote to leave the European Union.

“Incredibly, while the post-referendum period has been dominated by positivity at the prospect of easy monetary policy, we are seeing indices turn lower just as we see those policies occurring,” said IG market analyst Joshua Mahony.

“It is clearly a case of buy the rumour, sell the fact for markets, with risk aversion driving equities lower and havens higher despite action from the RBA overnight.” The Reserve Bank of Australia cut interest rates to a record low of 1.5% overnight to boost the economy.

Meanwhile, weak construction data fuelled bets the BoE will loosen policy this week. UK construction output continued to fall in July as activity dropped by the fastest rate in seven years.

The Markit/CIPS construction industry purchasing mangers’ index (PMI) slid to 45.9 in July from 46.0 the month before, which was not as bad as the consensus 44.0 feared by economists but still was the second successive sharp fall and the biggest decline since June 2009. A level below 50 signals a contraction in sector activity while a reading below that indicates an expansion.

“UK construction activity fell sharply for a second successive month in July, pointing to an ongoing impact of Brexit-related worries on the economy that raises the risk of a recession," said Markit's chief economist Chris Williamson.

It follows Monday’s Markit/CIPS UK manufacturing PMI which fell to 48.2 from 52.4 in June and came in weaker than the flash estimate of 49.1, marking the lowest level since February 2013.

Elsewhere, producer prices in the eurozone rose more than expected in June, driven by increases in the energy sector, according to the latest data from Eurostat. Prices were up 0.7% on the month versus economists’ expectations for a 0.4% increase and a 0.6% rise in May.

In company news, Royal Bank of Scotland, Barclays and Lloyds Banking Group slumped ahead of the BoE’s policy decision. RBS and Barclays were also lower on Monday after EU-wide stress test results showed a drop in the lenders’ capital ratio.

Johnson Matthey was under the cosh as Berenberg cut its rating on the stock to ‘hold’ from ‘buy’.

Travis Perkins declined as it said like-for-like sales in July had been below normal levels in the wake of the UK's decision to leave the European Union as it posted a 10.7% rise in interim profits to £176m.

Direct Line Group rallied as the insurance company delivered a chunky special interim dividend alongside its half year report for the six months to 30 June, where gross written premiums for ongoing operations were 3.9% higher, driven by strong growth in motor in-force policies - up 2.5% - and a 9.5% increase in premium rates.

InterContinental Hotels shares maintained their rebound of recent months as although earnings were hit by the strong US dollar in the first half of the year, the Holiday Inn operator swerved the conditions that have led to recently lowered guidance from rivals Hilton and Marriott and said it remains confident in the outlook for the rest of the year.

Fresnillo jumped as first-half silver and gold production rises of 6% and 23% respectively helped to boost the miner’s earnings to $474m from $317.9m.

Market Movers

FTSE 100 (UKX) 6,670.08 -0.36%
FTSE 250 (MCX) 17,126.94 -0.07%
techMARK (TASX) 3,457.46 -0.35%

FTSE 100 - Risers

Direct Line Insurance Group (DLG) 388.30p 9.35%
InterContinental Hotels Group (IHG) 3,116.00p 3.38%
Fresnillo (FRES) 1,977.00p 2.81%
Admiral Group (ADM) 2,205.00p 2.61%
Randgold Resources Ltd. (RRS) 9,050.00p 1.57%
Unilever (ULVR) 3,581.50p 1.34%
Reckitt Benckiser Group (RB.) 7,443.00p 1.25%
Pearson (PSON) 892.00p 1.08%
Imperial Brands (IMB) 4,018.50p 0.99%
Provident Financial (PFG) 2,706.00p 0.74%

FTSE 100 - Fallers

Royal Bank of Scotland Group (RBS) 183.70p -2.86%
Barclays (BARC) 147.35p -2.68%
Johnson Matthey (JMAT) 3,194.00p -2.41%
Travis Perkins (TPK) 1,510.00p -2.20%
Intertek Group (ITRK) 3,472.00p -2.06%
BHP Billiton (BLT) 944.60p -1.94%
Standard Life (SL.) 294.70p -1.80%
Mediclinic International (MDC) 1,040.00p -1.79%
Prudential (PRU) 1,304.00p -1.77%
Lloyds Banking Group (LLOY) 52.36p -1.67%

FTSE 250 - Risers

BBA Aviation (BBA) 249.50p 6.17%
IP Group (IPO) 159.10p 6.07%
esure Group (ESUR) 272.50p 3.65%
Spire Healthcare Group (SPI) 330.70p 2.86%
Hochschild Mining (HOC) 282.30p 2.43%
Clarkson (CKN) 1,874.00p 1.96%
Moneysupermarket.com Group (MONY) 302.60p 1.89%
Crest Nicholson Holdings (CRST) 414.80p 1.84%
Beazley (BEZ) 395.40p 1.80%
Just Eat (JE.) 543.50p 1.78%

FTSE 250 - Fallers

Rotork (ROR) 194.30p -9.04%
Rank Group (RNK) 215.10p -6.48%
Ascential (ASCL) 250.50p -5.61%
Keller Group (KLR) 873.50p -4.01%
Shawbrook Group (SHAW) 178.20p -3.68%
DFS Furniture (DFS) 203.80p -3.37%
International Personal Finance (IPF) 253.10p -3.29%
Barr (A.G.) (BAG) 518.50p -3.26%
Grafton Group Units (GFTU) 537.00p -2.89%
Meggitt (MGGT) 421.60p -2.77%