Pennant International Share News (PEN)

LONDON (Alliance News) - London-listed stocks were making a lacklustre start to June on Wednesday, after the OECD ramped up its warnings about the impact of the UK leaving the European Union, even as a new poll showed support for Brexit back in the lead ahead of the UK's referendum later this month.

The Organisation for Economic Co-operation and Development said leaving the EU would have a "substantial" impact on the UK economy, slashing forecasts as it said Brexit fears have already "undermined" growth. The OECD added that Brexit would have significant impact on growth across Europe and rest of the world and trigger turbulence in financial markets.

In its latest economic outlook forecast, the organisation said: "A decision to exit would result in considerable additional volatility in financial markets and an extended period of uncertainty about future policy developments, with substantial negative consequences for the United Kingdom, the European Union and the rest of the world."

This magnified concern caused by the latest ICM poll, released before the London market close on Tuesday, which found UK voters leaning towards the Leave camp. Conducted on behalf of the Guardian, the poll showed voters split 52% to 48% in favour of Brexit, combining both online and phone surveys. The last time the same survey was carried out, the Remain camp had a ten-point lead in the phone polling.

The FTSE 100 index, traded down 0.7%, or 44.11 points, to 6,186.68 at midday Wednesday. The FTSE 250 was down 0.6% at 17,078.72, and the AIM All-Share was down 0.4% at 736.94.

In European equity markets, the CAC 40 index in Paris was down 0.8% and the DAX 30 in Frankfurt was down 0.7%.

Ahead of the open on Wall Street, futures indicated the Dow 30 and S&P 500 indices both down 0.4% and the Nasdaq 100 down 0.3%.

Manufacturing data from the UK and Europe did little to help London equities.

"It seems that investors are more focused on the potential fallout of a Brexit, and the declining oil price (Brent Crude now back at USD49 per barrel), than the day’s data, ignoring the better than expected 50.1 manufacturing PMI reading," said Connor Campbell, financial analyst at Spreadex.

British manufacturing unexpectedly rebounded in May with modest growth as new order gains were subdued amid the sustained decline in foreign demand, survey data from Markit Economics showed.

The Markit/CIPS Purchasing Managers' Index for the UK manufacturing sector rose to 50.1 from 49.4 in April, and ahead of economists' forecast of 49.6. A PMI score above 50 suggest growth in the manufacturing sector.

"Although key indicators for output, new orders and the headline PMI all ticked higher in May, the latest survey is still consistent with around a 0.8% quarterly decline in the official ONS manufacturing production index. The sector will therefore remain a drag on broader economic growth, adding pressure on the service sector to sustain the upturn in GDP," said Rob Dobson, senior economist at Markit.

Meanwhile, Eurozone manufacturing growth slowed as estimated in May as inflows of new work from domestic and export markets continued to rise at lacklustre rates. The final PMI fell to a 3-month low of 51.5 in May, in line with flash estimate, from 51.7 in April.

"The disappointing performance of manufacturing adds to suspicions that the pace of eurozone economic growth in the second quarter has cooled after a surprisingly brisk start to the year based on the latest estimate of GDP," Chris Williamson, chief economist at Markit, said.

London's heavyweight mining sector had already been sinking on uninspiring Chinese manufacturing data, released overnight.

China's official manufacturing purchasing managers' index came in at 50.1 for May, unchanged from the reading in April.

However, the Caixin manufacturing PMI stayed below the 50.0 mark, which separates expansion from contraction, for the 15th straight month. Markit said the index slipped to 49.2 in May from 49.4 in April and a touch lower than economists' expectation of 49.3.

Miners Antofagasta, down 4.0%, Rio Tinto, down 3.5% and Glencore, down 3.4%, were all among the biggest blue-chip fallers Wednesday morning in London. The FTSE 350 Mining sector index was down 2.5% at midday, the worst performing sector.

Elsewhere in the FTSE 100, Wolseley was the worst performing stock, down 7.1%, after the plumbing supplies company said recent revenue growth trends have been weaker, due to deflationary headwinds and mixed market conditions, although Wolseley noted there was "decent revenue growth" in the third quarter of its financial year.

In the weeks since the third quarter ended April 30, Wolseley said like-for-like revenue growth has been 1.0%, compared to 2.8% in the quarter. Additionally the company pointed to further restructuring in the UK and Europe, with total restructuring costs for the full year expected to be about GBP20.0 million.

The company noted that demand in several of its markets remains subdued, and it continues "to experience the adverse impact of commodity deflation, particularly in the US".

"We expect trading profits for the full year, before restructuring costs, to be in line with analyst expectations at current exchange rates," Wolseley said.

Housebuilders were lower as UK house price inflation slowed in May to its lowest level in four months, survey figures from the Nationwide Building Society showed. The house price index rose 4.7% annually, following a 4.9% increase in April. Economists had forecast a 4.8% gain.

Taylor Wimpey was down 3.1%, Barratt Developments down 2.8%, and Berkeley Group Holdings, down 2.5%.

Halfords Group led the FTSE 250 fallers, down 4.9%. The bicycle and car parts retailer reported a fall in profit in its recently ended financial year due to exceptional costs, and as the prior year benefited from an extra week, but revenue excluding that extra week increased due to growth in the autocentres division.

The car parts and bicycle retailer said pretax profit in the year ended April 1 fell to GBP79.8 million from GBP83.8 million the year before, as revenue slipped slightly to GBP1.02 billion from GBP1.03 billion.

The prior year contained an extra week, and excluding this, revenue was GBP1.00 billion, meaning revenue did actually rise by 1.7% on a proforma basis. However profit on a proforma basis the prior year was still slightly higher at GBP80.8 million.

Logistics support services company Pennant International Group said its Pennant Training Systems subsidiary has secured two new contracts worth a total of GBP13.0 million.

Both contracts are to supply equipment, hardware and software to support aeronautical engineering training in the Middle East. The two Middle Eastern clients awarding the contracts were not named. The deals are expected to run through to the end of 2017, Pennant said. The stock traded up 37%, making it the biggest gainer in the AIM All-Share.

Still ahead in the economic calendar, there are US manufacturing data from Markit at 1445 BST and ISM at 1500 BST. Also at 1500 BST is US construction spending, while the American Petroleum Institute's weekly crude oil stocks are reported at 2100 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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