Profit warning from engines firm drags FTSE - London Report

Worries over Greece and a profit warning from one of the country’s best-known brands had a negative impact on the UK market yesterday.

A slump in Rolls-Royce led Britain’s top equity index lower, although it outperformed continental European indexes, hit harder by uncertainty over the economic fallout from Greeks’ rejection of bailout conditions.

Engineering company Rolls-Royce was the worst-performing FTSE 100 stock, falling 6.3 per cent after the company cut its profit forecasts for this year and next.

The company cited weakness in oil and gas markets and lower demand in parts of its aircraft business.

Traders also expressed disappointment that a share buyback programme was being halted after Rolls Royce’s third profit warning in nine months.

“A new chief executive may be in place, but it is the same story of investor disappointment as profit forecasts misfire for Rolls Royce,” Brenda Kelly, analyst at London Capital Group, said.

The benchmark FTSE index closed down 50.1 points, or 0.8 per cent, at 6,535.68. Germany’s DAX fell 1.5 percent and the Eurozone’s Euro STOXX 50 index 2.3 per cent.

“The British stock market is slightly outperforming given... (it is) relatively less exposed to the problems in Greece,” Securequity sales trader Jawaid Afsar said.

The FTSE 100 has erased gains made over the course of 2015 and is some eight per cent below a record high of 7,122.74 points set in April with investor confidence has been undermined in part by uncertainty over the economic impact of Greece’s debt crisis.

Greece’s “No” vote risks a banking collapse that could force the country out of the euro.

Without more emergency funding from the European Central Bank, Greek banks could run out of cash within days.

Many banks now assume that Greece is likely to leave the euro.

However, some investors said the resignation of finance minister, Yanis Varoufakis, showed that the government was willing to compromise to find a solution.

“There’s the sign of some flexibility from the Greek side, and with Varoufakis resigning, it’s a signal to Europe that it’s not necessarily the case that Greece will leave the euro,” Julius Baer head of research, Christian Gattiker, said.

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