London midday: Stocks fall as UK services activity contracts

London stocks fell on Wednesday on another dismal UK purchasing managers’ index report ahead of the Bank of England’s policy decision.

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 contraction in the services industry 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 on 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 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.

Looking ahead to the rest of the day, the main focus is likely to be on the US ADP employment report, which is widely considered a pre-cursor to Friday’s all-important non-farm payrolls.

Markus Huber, a trader at City of London Markets, said: “In the light of the weak US GDP data last week even a strong number wouldn't necessarily make a rate hike in September more likely.”

In corporate news, Standard Chartered was a top riser 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.

HSBC Holdings' shares gained in spite of profits falling by more than a quarter amid difficult conditions in the first half of the year. Investors were no doubt pleased with news of a $2.5bn (£1.8bn) share buyback thanks to the sale of the bank's Brazilian business.

Fashion retailer Next was also 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.

Market Movers

FTSE 100 (UKX) 6,634.76 -0.16%
FTSE 250 (MCX) 17,020.17 -0.25%
techMARK (TASX) 3,428.62 -0.54%

FTSE 100 - Risers

Standard Chartered (STAN) 643.00p 9.06%
Next (NXT) 5,330.00p 3.90%
HSBC Holdings (HSBA) 500.60p 3.69%
Associated British Foods (ABF) 2,811.00p 3.42%
GKN (GKN) 292.70p 2.20%
BHP Billiton (BLT) 949.40p 1.28%
Randgold Resources Ltd. (RRS) 9,125.00p 1.11%
BT Group (BT.A) 407.85p 1.05%
ARM Holdings (ARM) 1,686.00p 0.84%
Glencore (GLEN) 187.20p 0.75%

FTSE 100 - Fallers

Paddy Power Betfair (PPB) 8,370.00p -2.16%
Direct Line Insurance Group (DLG) 392.60p -1.83%
British American Tobacco (BATS) 4,745.50p -1.56%
Pearson (PSON) 871.00p -1.53%
Babcock International Group (BAB) 954.50p -1.45%
Relx plc (REL) 1,414.00p -1.39%
Imperial Brands (IMB) 3,992.50p -1.37%
Admiral Group (ADM) 2,183.00p -1.27%
Carnival (CCL) 3,511.00p -1.24%
GlaxoSmithKline (GSK) 1,669.50p -1.21%

FTSE 250 - Risers

Pendragon (PDG) 32.57p 5.27%
Laird (LRD) 308.70p 4.57%
Amec Foster Wheeler (AMFW) 437.00p 3.41%
Cairn Energy (CNE) 177.00p 3.09%
Hochschild Mining (HOC) 296.00p 2.71%
Tullett Prebon (TLPR) 341.80p 2.70%
Brown (N.) Group (BWNG) 173.70p 2.66%
CLS Holdings (CLI) 1,383.00p 2.60%
OneSavings Bank (OSB) 208.20p 2.46%
Virgin Money Holdings (UK) (VM.) 265.40p 2.39%

FTSE 250 - Fallers

Aggreko (AGK) 1,075.00p -12.67%
Meggitt (MGGT) 404.80p -4.12%
Drax Group (DRX) 315.20p -4.08%
G4S (GFS) 177.00p -3.96%
Moneysupermarket.com Group (MONY) 293.20p -2.91%
Ascential (ASCL) 243.70p -2.52%
TalkTalk Telecom Group (TALK) 216.70p -2.52%
Beazley (BEZ) 391.90p -2.24%
Workspace Group (WKP) 678.00p -1.95%
Millennium & Copthorne Hotels (MLC) 413.80p -1.78%