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UK mid caps set for biggest one-day drop as dark skies gather for domestic firms
June 15, 2017 / 9:50 AM / 3 months ago

UK mid caps set for biggest one-day drop as dark skies gather for domestic firms

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* FTSE 100 down 0.7 pct, FTSE 250 down 1.2 pct

* Mid caps set for biggest one-day drop this year

* DFS dives after profit warning

* Next cut at Credit Suisse

* Miners, energy also weigh

By Kit Rees

LONDON, June 15 (Reuters) - British mid caps were poised for their worst one-day fall this year on Thursday as a sharp slowdown in British retail sales last month offered the latest sign of darkening clouds over firms exposed to the domestic economy.

Struggling retailers, weak commodities stocks and ex-dividends also sent the blue chip FTSE 100 index to its lowest level in one month, down 0.7 percent at 7,423.52 points by 0917 GMT, while the mid caps fell 1.4 percent.

“If one of the indices is going to find things tougher, it’s likely to be the (FTSE) 250 than the 100,” Mike van Dulken, head of research at Accendo Markets, said.

The session was proving especially tricky for British retailers after furniture seller DFS plummeted more than 22 percent following a profit warning, blaming a weaker trading environment. Its shares were set for their worst day since listing.

Shares in mid cap peer Howden Joinery also nursed a 5.5 percent loss, while smaller firm ScS tumbled 9 percent. The FTSE 350 general retailers index dropped 2.5 percent.

“DFS believes that (like-for-like) sales could recover, however, we take a more cautious view given rising inflation and Brexit uncertainty,” analysts at Jefferies said in a note, downgrading DFS to “hold”.

A sharp fall in retail sales in May showed that British retailers are facing a tough time as a jump in inflation and low wage growth puts pressure on consumers, with a hung parliament following the UK general election also adding to political uncertainty.

Weakness in retail was also evidenced in the U.S. in the previous session, when figures showed that U.S. consumer prices unexpectedly fell in May.

The latest macroeconomic data also put the spotlight on a Bank of England interest rate decision later in the day.

Aside from falls in Persimmon and other stocks trading ex-dividend, clothes retailer Next saw its shares drop 4.7 percent after Credit Suisse cut its rating to “underperform”, pointing to weak pricing across Europe for the wider sector.

“With earnings, margins and cash conversion continuing to fall we regard Next as a value trap,” Credit Suisse analysts said in a note.

Falls in mining firms also weighed, with Anglo American , BHP Billiton and Glencore all weaker as the price of copper fell, set back by strength in the dollar after the U.S. Federal Reserve raised interest rates.

Likewise oil & gas stocks BP and Royal Dutch Shell retreated as the price of oil hit a six-week low.

Only a handful of stocks were in positive territory among the blue chips, with emerging markets-exposed lenders HSBC and Standard Chartered among the biggest risers. (Reporting by Kit Rees, editing by Pritha Sarkar)

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