LONDON MARKETS: FTSE 100 Falls The Most In A Month As Commodity Stocks And Lloyds Drop

By Carla Mozee, MarketWatch

Antofagasta's copper outlook disappoints

Stocks in the U.K. were losing the most in a month Wednesday, anchored by declines in shares of metals and oil producers.

Lloyds Banking Group PLC shares were also serving as a drag, though they managed to recover from steeper losses.

The FTSE 100 fell 1.3% to 6,924.84, on track for its deepest loss since Sept. 26, 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). (http://www.marketwatch.com/story/ftse-100-gains-as-miners-and-st-jamess-place-jump-2016-10-25)

Part of the hit was coming from oil prices, as West Texas Intermediate crude futures dropped nearly 2% and traded closer to $49 a barrel. Brent crude prices also lost almost 2%, gliding just below $50 a barrel.

That pressured shares of oil producers BP PLC (BP.LN) (BP.LN) and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) , which fell 2.1% and 2.4%, 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) sank to the bottom of the FTSE 100 as the miner's shares gave up 6.5%. 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 3.1% and BHP Billiton PLC (BLT.LN) (BHP.AU) (BHP.AU) was down 2.3%. Rio Tinto PLC (RIO) (RIO) (RIO) was off 1.3%.

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) briefly turned higher after dropping more than 3% during the session. But the gain faded, leaving the stock down by 0.4%. 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 1.9%, HSBC PLC (HSBA.LN) (HSBA.LN) lost 0.6% and Standard Chartered PLC (STAN.LN) gave up 1.8%.

Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) shares turned lower, losing 0.3%. Banking group CYBG PLC (CYBG.LN) said it's 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 shares on the FTSE 250 index were down 1%. The mid-cap index fell 0.9%.

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 3.8%.

The pound was buying $1.2227 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's 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 10:10 ET (14:10 GMT)

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