LONDON MARKET MIDDAY: Shares Off Lows As Gold Miners Lead Gainers

LONDON (Alliance News) – Share prices in London were off their worst levels Friday at midday, after the UK voted to leave the European Union and Prime Minister David Cameron resigned.

The FTSE 100 was down 4.4%, or 283.55 points, at 6,054.55. The blue-chip index had fallen as much as 8.7% in early trade. The FTSE 250 index was off 8.3% at 15,895.36, and the AIM All-Share was down 4.0% at 697.54.

Rory Bateman, head of European equities at UK-based asset manager Schroders, said in a conference call it was encouraging that the market “has not panicked”, saying that the decline seen in London stocks was “quite reasonable”.

The final result was confirmed at Manchester Town Hall by chief counting officer Jenny Watson at around 0720 BST. It showed Leave won by 52% to 48% for Remain. Voter turnout hit 72%, with the total number voting only second to the 1992 General Election in terms of the largest number of voters taking part.

The Leave side outperformed across the regions of England and defied the pre-vote polling and forecasts from both markets and bookmakers. Remain won in London and Scotland. Cameron, who had campaigned for the UK to Remain in the EU said he will step down as prime minister by October. He said with a new prime minister, the UK could begin negotiating its exit from the EU.

Financial stocks and housebuilders were recovering some of the ground lost at the open, whilst gold miners were leading the few gainers in both the FTSE 100 and FTSE 250 as the precious metal price hit a new 2016 high.

Randgold Resources was up 20%, while Fresnillo was adding 12%. Mid-cap Acacia Mining was up 15% andCentamin up 9.4%. Gold was quoted at USD1,324.20 an ounce at midday, having reached a 2016 high earlier Friday at USD1,359.19 an ounce.

The FTSE 350 Real Estate Investment Trust sector index was down 15% at midday, having traded down 26% at the open. The FTSE 350 House Goods & Home Construction sector index was off 9.1%, recovering from being 16% down shortly after the open.

“The debate over what the EU referendum means for the outlook for the UK will last much longer than today, but for now we offer the conclusion that the outcome is bad for housebuilders’ shares as the combination of slowing GDP, rising longer term rates and political uncertainty is like Kryptonite for that group of shares,” said Liberum analyst Charlie Campbell.

The FTSE 350 Life Insurance/Assurance sector index was down 12%, having traded down as much as 22% at the London open. Meanwhile, the FTSE 350 Banks sector was down 12%, versus down 17% after the open.

Though banking stocks were taking a hit Friday after the vote to Leave the EU, Schroders’s Bateman said UK lenders are “in a much better state” than at the financial crisis, “so there will be no banking crisis”.

The Bank of England said some market and economic volatility can be expected after the UK’s surprise decision to leave the EU. “Some market and economic volatility can be expected as this process unfolds,” Governor Mark Carney said in a statement. “But we are well prepared for this.”

The Treasury and the Bank of England have engaged in extensive contingency planning and have put in place such measures, Carney said. “The bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward,” he added.

Azad Zangana, senior European economist at Schroders said “there is a chance” that the BoE cuts interest rates “but we expect it to wait to see how the situation evolves”.

The pound was recovering some of the ground lost after touching a low of USD1.3227 earlier Friday, a level it hadn’t seen since 1985. Sterling was standing at USD1.3670 at midday, compared to USD1.4800 at the London equities close on Thursday.

The European Central Bank also issued a statement following the vote, saying that it is closely monitoring financial markets and is in close contact with other central banks. “The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies,” the bank said in a statement on its website.

The euro also was weaker against the dollar at midday. The single currency was quoted at USD1.1052, having touched a low of USD1.0911 earlier Friday. On Thursday at the European equities close, the single currency stood at USD1.1366.

Stocks in Europe also were above their worst levels, with the CAC 40 index in Paris down 8.7% and the DAX 30 in Frankfurt down 7.2%.

US Federal Reserve Janet Yellen had warned on Tuesday that a vote to Leave by the UK could have “significant economic repercussions”.

Due to the outcome of the referendum, Schroders’s Zangana said it is likely that the Fed will keep US interest rates on hold for the rest of the year, while other central banks “will keep very loose policies”.

Stocks in New York were expected to follow Europe lower, with the Dow 30 index seen down 3.1%, while the S&P 500 and the Nasdaq 100 both were pointed down 3.8%.

Still ahead in the economic calendar Friday, US durable goods orders are at 1330 BST, Reuters/Michigan consumer sentiment index at 1500 BST and Baker Hughes at 1800 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

Copyright 2016 Alliance News Limited. All Rights Reserved.

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