6th Jul 2016 15:57
LONDON (Alliance News) - Stocks in the UK closed lower Wednesday, with financial and housebuilding stocks again dominating the biggest fallers as more fund managers suspended trading in their UK property funds following the turmoil after the Brexit vote.
The FTSE 100 ended the day down 1.3%, or 81.78 points at 6,463.59. The FTSE 250 was down 0.4%, or 64.97 points, at 15,669.71 and the AIM All-Share was down 1.2%, or 8.16 points at 696.99.
The pound slipped towards the end of the stock market session Wednesday. At the London close it traded the dollar at USD1.2911 versus USD1.3035 at the close on Tuesday. Sterling had hit a fresh 31 year low against the green back overnight at USD1.2797.
At the London equities close the euro traded the dollar at USD1.1072 slightly lower than the USD1.1094 seen at the same time on Tuesday.
In Europe, the CAC 40 in Paris ended down 1.9% and the DAX 30 in Frankfurt down 1.7%.
In London, Aviva ended as one of the worst performers, down 6.3%. The insurer's chief executive said the company remains in a strong position and should be able to continue to grow following the UK's vote to leave the European Union.
Mark Wilson, speaking ahead of Aviva's capital markets day, said the "fundamentals are sound" in the business. "Our balance sheet is strong and resilient, and we are a simpler, focused group with excellent franchises. This is a strong foundation from which to grow profits, cash-flow and dividends over the coming years," he added.
Wilson said it is too early to quantify the precise impact a Brexit will have, but said Aviva is "confident we can continue to grow".
His comments came a day after Aviva Investors, Aviva's investment management arm, became one the major fund managers to suspend trading in its commercial property fund following a sharp rise in redemptions in response to the Brexit vote. The other fund managers were Prudential's M&G Investments and Standard Life Investments, the investment management arm of Standard Life.
Adding to that list late Wednesday was Henderson Group, which suspended trading in its commercial property fund as have fund managers Columbia Threadneedle and Canada Life.
Societe Generale said the big UK banks have significantly reduced exposure to the UK commercial real estate market since the financial crisis in 2008, but Royal Bank of Scotland Group is the most exposed and could be hit if there is a significant decline in the market, said Societe Generale.
Speaking on RBS, SocGen analyst James Irvine said: "We acknowledge that it has de-risked its UK commercial real estate portfolio since the crisis, but it remains most exposed of the large UK banks if there is a significant decline in UK commercial real estate prices."
SocGen estimates that RBS has 63% exposure to the UK commercial real estate relative to tangible equity.
RBS was one of the heaviest fallers in the FTSE 100, down 5.3%, joined by peer Lloyds Banking Group, which ended down 6.8%.
Supermarket chain Tesco closed down 7.2%, after HSBC downgraded it to Hold from Buy. The bank also cut Wm Morrison Supermarkets to Reduce from Hold causing the stock to close down 7.2% as well.
Continuing their post-Brexit outperformance, however, were precious metals miners. Having briefly touched its highest level since September 2011, Fresnillo shares ended up 4.7%, while Randgold Resources ended up 4.0%, having reached an all-time high earlier in the session.
The miners had been tracking the price of gold which reached an intraday peak of USD1,375.01 an ounce, its best level since March 2014. At the London stock market close, gold was quoted at USD1,367.58 an ounce.
Brent oil, however, fell slightly on Wednesday. At the close, the North Sea benchmark was at USD47.61 a barrel, compared to USD47.89 a barrel at the close Tuesday.
In the FTSE 250, oil and gas explorer Tullow Oil shares were sold off after the company took action to address its financial position, securing a new source of funding by issuing USD300.0 million in convertible bonds.
Tullow said the convertible bonds will mature in 2021, with the initial conversion price to be set at a premium of 30% to 35% to the volume-weighted average price of Tullow shares on Wednesday.
Funds raised through the issue will diversify Tullow's funding sources and will be used for general corporate purposes, in addition to funding development work at its assets in West and East Africa, the company added.
The move does not alleviate several other potential problems across the business which has suffered from lower production levels, deteriorating cashflow, rising debt, and other issues with its main development project.
The stock ended down 13%, the worst performer in the mid-cap index.
Melrose Industries was the best performer in the FTSE All-Share, up 47%, after it agreed a USD1.44 billion deal to acquire US-based heating, ventilation, air conditioning and home appliance products maker Nortek and will launch a rights issue of shares to finance the deal.
The industrial group said it will acquire Providence, Rhode Island-based Nortek for USD86.00 per share, a 38% premium to Nortek's closing price on NASDAQ in New York on Tuesday.
Melrose said its offer already has support of shareholders representing 68.7% of Nortek, as well as the unanimous support of the Nortek board. Melrose will finance the deal with a fully-underwritten rights issue of 12 new shares at 95.00 pence per share for each 1 existing share, raising a total of GBP1.61 billion.
On Wall Street at the London stock market close, the Dow 30 was down 0.2%, the S&P 500 down 0.1% while the Nasdaq Composite was up 0.3%.
Economic activity in the US service sector grew faster than expected in the month of June, the Institute for Supply Management revealed in a report.
The ISM said its non-manufacturing index jumped to 56.5 in June from 52.9 in May, with a reading above 50 indicating growth in the service sector. Economists had expected the index to inch up to 53.3. The non-manufacturing index is now at its highest level since reaching 56.6 last November.
Still ahead in the economic calendar is the US Federal Reserve's minutes for its June 14-15 meeting at 1900 BST. Given that the meeting took place before the UK referendum the key focus will be how the Fed reacted to the disappointing May nonfarm payrolls.
In the economic calendar for Thursday, Halifax house prices for the UK is at 0830 BST, just before industrial and manufacturing production at 0930 BST. The focus will then be on the accounts of the European Central Bank's meeting on June 2 at 1230 BST.
US ADP employment change at 1315 BST as is continuing and initial jobless claims. The National Institute of Economic & Social Research's UK GDP estimate is at 1500 BST and the US Energy Information Administration's crude oil stocks is at 1600 BST.
The main events in the corporate calendar are trading statements from clothing, homewares and food retailer Marks & Spencer Group and Primark and British Sugar-owner Associated British Foods. Investors will also be keen to hear from housebuilder Bovis Homes Group and property investment and development company Great Portland Estates, which both release trading statements.
Also in the calendar there are full-year results from sporting goods retailer Sports Direct International and cyber security company NCC Group. Recruiter Robert Walters reports second quarter results and gold miner Centamin issues second quarter production results.
By Neil Thakrar; [email protected]; @NeilThakrar1
Copyright 2016 Alliance News Limited. All Rights Reserved.
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