London midday: Stocks fall as UK manufacturing sector contracts in July

London stocks fell on Monday after data showed the UK manufacturing sector contracted more than expected in July on the back of pre- and post-EU referendum uncertainty.

The Markit/CIPS UK manufacturing purchasing managers’ index 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. A level below 50 signals a contraction in sector activity while a reading below that indicates an expansion.

David Morrison, senior market strategist at SpreadCo, said: “This latest reading provides the Bank’s MPC with further evidence of a post-Brexit slowdown and makes a rate cut at Thursday’s meeting pretty much inevitable.

“The only question now is whether they back up a 25 basis point cut with an increase to the asset purchase facility as well.”

The Bank of England is widely expected to cut interest rates for the first time in seven years when policymakers meet on Thursday, after assessing the impact of the UK’s vote to leave the European Union. The Bank releases its August Inflation Report at the same time as the policy decision, which will provide more information on the outlook following the EU referendum.

“We could see something as simple as a rate cut, possibly even down to zero percent, maybe with some more asset purchases,” said Craig Erlam, senior market analyst at Oanda.

“Alternatively, they may look at funding for lending again, or something along the same lines, as a way to prevent funding to businesses and households drying up.”

The BoE on 14 July voted 8-1 to maintain the Bank Rate at 0.50% as it said it was waiting for more post-Brexit economic data before taking action. In the minutes of its July meeting, the BoE said it was likely to loosen policy in August when the data becomes available.

Elsewhere, China manufacturing data also came in weaker than expected. The official PMI fell to 49.9 in July from 50.0 a month earlier, surprising analysts who had expected no change.

In contrast, the private Caixin PMI on manufacturing rose to 50.6 in July from 48.6, beating forecasts of 48.9.

The eurozone manufacturing PMI from Markit nudged down to 52.0 in July from 52.8 in June. Still, the reading came in above the flash estimate of 51.9 and marked the 37th consecutive month of expansion.

The US also sees the release of manufacturing PMIs from Markit and ISM at 1445 BST and 1500 BST, respectively.

In corporate news, banks weighed on the FTSE 100 after results of 2016 EU-wide stress tests on lenders by the European Banking Authority were published.

Barclays said its Tier 1 capital ratio fell to 7.3% from a 2015 year-end position of 11.4% under the stress test. Royal Bank of Scotland's ratio fell by 7.5 percentage points to 8.1%.

Housebuilders were also under pressure after the weak UK manufacturing PMI, including Taylor Wimpey, Barratt Developments and Persimmon.

Going the other way, Anglo American got a boost as RBC Capital Markets upgraded the stock to ‘outperform’ from ‘sector perform’ and lifted the price target to 1,000p from 800p saying the tide is turning for the investment case.

Acacia Mining rallied as it said it has continued to enhance and expand its exploration portfolio through an agreement to accelerate the earn-in on the West Kenya Joint Venture licences in Kenya.

Market Movers

FTSE 100 (UKX) 6,710.61 -0.21%
FTSE 250 (MCX) 17,250.00 -0.19%
techMARK (TASX) 3,475.09 0.06%

FTSE 100 - Risers

BHP Billiton (BLT) 967.00p 2.36%
Anglo American (AAL) 848.70p 2.19%
Hikma Pharmaceuticals (HIK) 2,687.00p 2.01%
Associated British Foods (ABF) 2,736.00p 1.67%
DCC (DCC) 6,855.00p 1.63%
Rio Tinto (RIO) 2,501.00p 1.60%
Compass Group (CPG) 1,458.00p 1.53%
Old Mutual (OML) 213.80p 1.52%
Antofagasta (ANTO) 507.00p 1.30%
Smith & Nephew (SN.) 1,259.00p 1.29%

FTSE 100 - Fallers

Taylor Wimpey (TW.) 149.80p -3.17%
International Consolidated Airlines Group SA (CDI) (IAG) 393.30p -3.13%
Berkeley Group Holdings (The) (BKG) 2,601.00p -3.06%
Barratt Developments (BDEV) 424.70p -2.93%
Barclays (BARC) 150.65p -2.52%
easyJet (EZJ) 1,015.00p -2.50%
Royal Bank of Scotland Group (RBS) 187.70p -2.44%
Persimmon (PSN) 1,648.00p -2.31%
Morrison (Wm) Supermarkets (MRW) 181.80p -2.15%
BT Group (BT.A) 404.65p -2.10%

FTSE 250 - Risers

Senior (SNR) 227.20p 10.88%
Kaz Minerals (KAZ) 166.70p 5.77%
Acacia Mining (ACA) 588.50p 5.18%
Hochschild Mining (HOC) 278.10p 4.08%
Fidessa Group (FDSA) 2,535.00p 3.89%
CMC Markets (CMCX) 286.80p 3.09%
Petrofac Ltd. (PFC) 767.00p 2.88%
Aldermore Group (ALD) 143.00p 2.80%
Telecom Plus (TEP) 1,069.00p 2.79%
Darty (DRTY) 171.75p 2.69%

FTSE 250 - Fallers

Keller Group (KLR) 911.50p -10.55%
Mitchells & Butlers (MAB) 236.80p -5.96%
Countrywide (CWD) 233.50p -5.85%
Thomas Cook Group (TCG) 61.60p -5.23%
Sophos Group (SOPH) 238.00p -4.42%
Restaurant Group (RTN) 339.00p -4.29%
Redrow (RDW) 326.50p -3.43%
Bellway (BWY) 2,025.00p -3.39%
Bovis Homes Group (BVS) 791.00p -3.36%
Crest Nicholson Holdings (CRST) 413.00p -3.35%