By Carla Mozee and Victor Reklaitis, MarketWatch
Antofagasta's copper outlook disappoints
U.K. stocks on Wednesday lost the most in more than a week,
dragged lower by declines in shares of metals and oil
producers.
Lloyds Banking Group PLC's shares also served as a drag
initially, but then managed to finish higher.
The FTSE 100 dropped 0.9% to 6,958.09, enduring its biggest
percentage drop since Oct. 17, FactSet data showed. The index on
Tuesday closed up 0.5%
(http://www.marketwatch.com/story/ftse-100-gains-as-miners-and-st-jamess-place-jump-2016-10-25).
Part of the hit came from oil prices, as West Texas Intermediate
futures and Brent crude both recently traded down roughly 1%.
That pressured shares of oil producers BP PLC (BP.LN) (BP.LN)
and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN), which fell 1.5% and
2.2%, respectively.
"As OPEC's already fragile promise to negotiate a production
freeze deal in a month's time looks to be falling apart...weak Q3
earnings from companies on both sides of the Atlantic are doing
nothing to buoy investors," said Henry Croft, research analyst at
Accendo Markets, in a note.
Meanwhile, a retreat by the ICE U.S. Dollar Index from
eight-month highs was pushing both the pound and the euro higher,
Croft said. Shares of U.K. multinational companies on the FTSE 100
in particular have been lifted as sterling has tumbled roughly 17%
since the U.K. in June voted to leave the European Union.
Miners: Antofagasta PLC (ANTO.LN) was among the FTSE 100's
biggest losers, as the miner's stock gave up 3.2%. While the
company's third-quarter copper output increased, Antofagasta said
it expects this year's copper output to be close to the lower end
(http://www.marketwatch.com/story/antofagasta-copper-output-up-reaffirms-guidance-2016-10-26)
of its forecast of 710,000-740,000 tons.
Shares of rival miners were also under pressure. Anglo American
PLC (AAL.LN) slumped 2%, and BHP Billiton PLC (BLT.LN) (BHP.AU)
(BHP.AU) was down 1.7%. Rio Tinto PLC (RIO) (RIO) (RIO) was off
0.2%.
Copper producers "have not had a strong third quarter thus far
with guidance downgraded by [166,000 tonnes] for 2016," said mining
analysts at Liberum in a note.
"Antofagasta will have to have a very strong quarter to hit the
bottom end of 2016 guidance of 710kt and has downgraded its 2017
guidance early," to a range of 685,000 tonnes to 720,000 tonnes
compared with consensus of around 750,000 tonnes, Liberum said.
"We still expect weakness in the copper price into the year end
driven by dollar strength and weak apparent Chinese demand," the
analysts said, adding that risks to their bearish call include a
continued rise in Chinese property prices.
Banks: Lloyds shares (LLOY.LN) (LLOY.LN) turned higher after
dropping more than 3% during the session. The stock closed up 1%.
The rocky ride came after Lloyds said third-quarter profit tumbled
68% to GBP219 million
(http://www.marketwatch.com/story/lloyds-profit-tumbles-on-provisions-2016-10-26)
($266.39 million) as it set put aside more cash to compensate
customers who were sold an unnecessary insurance product. Lloyds
did reaffirm its 2016 financial guidance.
Lloyds shares "as viewed as a proxy for the U.K. economy...have
been under pressure in anticipation of a hard Brexit, with all its
negative connotations and with interest rates remaining at historic
lows, the sector in general faces ongoing challenges," said Richard
Hunter, head of research at Wilson King Investment Management, in a
note.
A so-called hard Brexit refers to the possibility that the U.K.
would lose access to the European Union's single market and that
U.K. banks would have to give up passporting rules
(http://www.marketwatch.com/story/banks-planning-to-abandon-uk-in-wake-of-brexit-trade-body-warns-2016-10-24)
that allow them to seamlessly sell their services and products
across the EU.
Read: British Prime Minister May warned firms will ditch U.K.,
leaked tape reveals
(http://www.marketwatch.com/story/theresa-may-warned-firms-will-ditch-uk-due-to-brexit-leaked-tape-reveals-2016-10-26)
But positives for Lloyds include a "current dividend yield of
over 4% [that] is attractive to investors given the wider savings
backdrop," said Hunter.
Meanwhile, shares of Barclays PLC (BCS) (BCS) fell 1%, HSBC PLC
(HSBA.LN)(HSBA.LN) lost 0.6% and Standard Chartered PLC (STAN.LN)
gave up 1.1%.
Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) finished 0.7%
higher as earlier losses faded. Banking group CYBG PLC (CYBG.LN)
said it is made a preliminary proposal related to RBS's Williams
and Glyn operations
(http://www.marketwatch.com/story/cybg-rbs-in-talks-over-williams-and-glyn-ops-2016-10-26).
CYBG's stock, part of the FTSE 250 index, finished down 0.3%. The
midcap index fell 0.8%.
In other developments Wednesday, International Consolidated
Airlines Group (IAG.LN) said its British Airways business will pay
GBP300 million ($368.7 million) a year until 2027 to offset the
growing deficit of its new airways pension scheme. IAG shares flew
up to the top of the FTSE 100, rising 5.2%.
The pound was buying $1.2231 compared with $1.2182 late Tuesday.
Investors on Thursday will watch for the first reading of
third-quarter U.K. gross domestic product
(http://www.marketwatch.com/story/bank-of-england-economists-got-it-wrong-about-uks-post-brexit-growth-outlook-2016-10-25).
Consensus estimates point to growth of 0.3%. That is slower than
second-quarter growth rate of 0.7%, but much stronger than the
initial post-Brexit outlooks.
(END) Dow Jones Newswires
October 26, 2016 12:10 ET (16:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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