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FTSE 100 closes higher as sterling weakens against US dollar; Barclays plunges

The UK blue chip index closed down over 39 points at 7.486.
draghi
FTSE 100 and FTSE 250 closed higher on Thursday
  • FTSE 100 closes up over 39pts at 7,486

  • Sterling falls against dollar, rises versus euro

  • ECB to start tapering QE in January 2018

  • Barclays shares plunge after Q3 results

 

FTSE 100 added over 39  points on Thursday to close at 7,486 as European indices firmed and the weaker pound aided the UK benchmark.

Sterling was down 0.72% against the US dollar at the time of writing, but did gain against  the Euro - up 0.37% - after the ECB said it would cut the size of its asset purchases but extend the programme until next September.

The FTSE 250 also made good gains, adding over 90 points on the day, at 20,163.

David Madden, analyst at CMC Markets, said: "European stock markets are strong after the European Central Bank (ECB) announced it would reduce its stimulus package to €30 billion worth of bonds per month from January until the end of September 2018.

"The ECB President, Mario Draghi, was still cautious even though he was trimming the stimulus package, and hinted more could be used if it were required.

"Traders took this as an indication that their monetary policy will remain loose, and use the weakness in the euro as a reason to snap-up eurozone stocks."

Top riser on Footsie was Unilever plc (LON:ULVR), which gained  3.34%  to 4,225p, as the consumer goods giant made progress in efforts to simplify its Anglo-Dutch corporate structure.

RELX PLC (LON:REL) added 2.91% to 1,733p after it reported continued underlying growth in the first nine months of 2017.

On the downside, banking giant Barclays (LON:BARC) lost 7.41% to 182.40p after its third quarter profits missed forecasts and it reported a weak trading performance in its investment banking arm.

 

4.00pm: FTSE 100 still up 

As the closing bell draws near, the FTSE 100 is up 35 points to 7,482, led by RELX and Unilever.

RELX gained after reporting continued underlying growth in the first nine months of 2017 while Unilever rose after saying its offer to buy back the bulk of its Dutch preference shares for about €450mln had been declared unconditional.

In contrast, Barclays remains the biggest faller after its third quarter profits missed forecasts and it reported a weak trading performance in its investment banking arm.

Providing some support to the FTSE 100, the pound fell 0.68% versus the dollar to US$1.3172. Sterling was 0.29% higher against the euro at €1.1256, however, after the European Central Bank’s plans to cut its bond purchases in January 2018 but extend the programme by nine months was seen by the market as dovish.

Across the pond, US stocks were higher as investors weighed economic data including an increase in weekly jobless claims, a drop in pending home sales and a wider trade deficit, along with another flurry of corporate earnings. 

3.40pm: Berenberg sees ECB ending QE in 2018

Berenberg said it expects the ECB to end its purchases in December 2018 followed by a first hike in the refinancing rate in September 2019.

"We see a good chance that the ECB may ease the penalty it imposes on bank deposits a little beforehand by raising its deposit rate from -0.4% to -0.25% in the spring or summer of 2019," said Berenberg's Holger Schmieding. 

On today's decision to cut QE purchases to €30bn per month in January 2018 until September the same year, Schmieding doubts this will have a "major and sustained impact" on the eurozone economy and financial markets. 

"In the trade-off between size and duration of further asset purchases, the ECB leaned towards the 'less for longel camp today.

"Relative to the alternative which we had favoured, namely a cut in asset purchases to €40bn for six months that may have been followed by purchases of €20bn for three to six months  thereafter, the overall difference over the first nine months of 2018 is small (€10bn less)."

3.00pm: Draghi insists QE cut is not tapering 

European Central Bank President Mario Draghi closed his press conference by saying that the decision to cut QE is not tapering. ”This is not tapering, it’s downsizing,” he said.

“Mario Draghi left his best line till last, scorning those of who describe the reduction in net asset purchases as a taper,” said ETX Capital’s Neil Wilson.

“This was an incredibly well telegraphed decision and despite what the ECB president says we can call it a ‘dovish taper’.”

The euro has fallen 0.29% versus the pound and 0.78% against the dollar.

While the pound has reversed earlier declines against the euro, it is 0.54% lower versus the dollar at US$1.3190, helping the FTSE to hold onto gains in afternoon trading. The London index is up 28 points to 7,475.

 

2.30pm: ECB decision not unanimous

The European Central Bank’s policy decision was not unanimous.

Mario Draghi said there different viewpoints but a “broad consensus on several issues, and a large majority on other issues”.

He added that the QE programme is “open ended”, meaning it could continue asset purchases after its September 2018 deadline.

As for whether the ECB might following the Federal Reserve by raising interest rates after ending its bond purchases, Draghi said there was no fixed time frame. 

When asked if political uncertainty in Catalonia a risk to financial stability in Spain and in the euro-area at a whole, Draghi said the ECB was following developments closely but it is “very difficult to comment on developments that change every day”.

“To conclude now that there will be financial stability risks would be premature. We have to see what will happen...,” he said during a press conference after the ECB’s policy announcement.

2.10pm: Euro-area growth supported by pick-up in investment

The eurozone economy grew 0.7% in real terms in the second quarter after a 0.6% increase in the first quarter, ECB President Mario Draghi noted during his press conference after announcing it would begin tapering its QE programme in January 2018 but extend it by nine months. 

He said growth has been supported by an improvement in construction investment and a pick-up in exports as the outlook for the global economy is brighter.

However, risks include global factors such as foreign exchange effects resulting from the recent strengthening of the euro.

Despite the global risks to inflation, the ECB is focused on domestic issues, including job creation. The eurozone has created more than seven million jobs in the past four years, Draghi said. 

2.00pm: US data

Away from the ECB excitement, data has been released on US jobless claims and the advanced goods trade balance. 

US initial jobless claims rose by 10,000 to 233,000 in the week ended 21 October, the Labor Department revealed. Economists expected claims of 235,000.

The more stable monthly average of claims fell by 9,000 to 239,500.

Continuing claims, which includes the number of people already collecting unemployment benefits, fell by 3,000 to 1.89 million.

Separately, the Commerce Department said the trade deficit expanded to US$64.1bn in September from US$63.3bn in August, compared to analysts’ expectations of US$64.0bn, as growth in imports outpaced an increase in exports in September.

Wholesale inventories edged up 0.3% month-on-month to US$609.1mln in September following a 0.9% rise the previous month. Economist had pencilled in a 0.4% increase.

1.40pm: ECB's Draghi says stimulus remains necessary 

European Central Bank President Mario Draghi said while the economy has shown recovery, stimulus remains necessary to keep inflation and the economy on track.

Speaking a press conference after the ECB announced the tapering of its QE programme but for longer period, Draghi said domestic price pressures are still muted.

“Today’s monetary policy decisions were taken to preserve the very favourable financing conditions that are still needed for a sustained return of inflation to levels that are close to, but below 2%.”

1.10pm: Euro weakens as ECB tapering perceived as dovish

The ECB seems to be managing a taper without a tantrum, according to ETX Capital’s Neil Wilson.

“For the first time in many meetings we got a truly different policy statement and one that seems to strike a pretty good balance between the hawks and the doves,” he said.

“Extending asset purchases for nine months and cutting the rate to €30bn a month is pretty much slap bang in the mid-point of market expectations and should ruffle few feathers.”

He said the market took this to be “marginally dovish”, sending the euro down 0.50% against the dollar and down 0.09% versus the pound.

1.00pm: ECB tapering 'very dovish', says ING 

ING's chief economist, Carsten Brzeski said the ECB's tapering showed the central bank remains cautious about keeping the single currency area’s recovery on track.

"In short, today’s decision is a sea change but a very gentle one; not a big-bang u-turn in ECB monetary policy," the Brzeski  said.

"In fact, the QE recalibration the ECB has announced illustrates that the ECB wants to start the exit as cautiously as possible, ideally without seeing the euro appreciate or bond yields increase. It is a very dovish tapering."

12.45pm: ECB extends QE but at a tapered pace

The European Central Bank has left its key rates unchanged but said it would begin tapering asset purchases inJanuary 2018.

The ECB said it will continue asset purchases at the current monthly pace of €60 billion until the end of this year before tapering to €30bn in January next year until at least the end of September, extending the quantitative easing programme by nine months.

The central bank added that it would continue with purchases beyond September 2018 “if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim”.

The main Bank rate was held at 0.0% and the ECB also maintained the marginal lending facility at 0.25% and the deposit facility rate at -0.40%, as expected.

12.30pm: Squeeze on consumers should ease in 2018, says EY economist

The outlook for consumers remains “highly challenging” in the latter months of 2017 but should gradually improve in 2018, according to Howard Archer, chief economic advisor to the EY ITEM Club.

“Real income growth is currently negative, and it looks highly likely to remain so through the rest of 2017,” he said.

“Latest Office for National Statistics (ONS) data shows that total real average weekly earnings decreased by 0.3% in the three months to August. “Furthermore, inflation rose to 3.0% in September from 2.9% in August, and it looks likely to hover at 3% or just above for the rest of 2017.”

His remarks related to the CBI the Distributive Trades Survey, which revealed the sharpest fall in retail sales volumes in October since the financial crisis. Archer said the decline "reinforces our suspicion that the economy is unlikely to see any marked pick-up in activity in the near-term despite GDP growth edging up to 0.4% quarter-on-quarter in Q3 from 0.3% in Q2 and Q1".

 

12.00pm: Lunchtime trading

The FTSE 100 rose 33 points to 7,480 as the pound erased gains in the previous session when the currency was lifted by expectations of a November interest rate hike by the Bank of England.

Sterling fell 0.32% versus the dollar to US$1.3220 and declined 0.29% against the euro to €1.1191.

The currency received a boost on Wednesday after better-than-expected UK GDP supported bets for a rate hike next week.

The European Central Bank is due to announce its policy decision this afternoon with economists expecting a tapering of its quantitative easing programme.

In other eurozone news, Bloomberg reported that Catalonia may hold regional elections in December, potentially delaying a declaration of independence.

In company news, Barclays slumped after third quarter profit missed expectations as its investment bank was hit by weak markets.

Barratt Developments shares dropped as its stock went ex-dividend.

On the upside, Unilever gained after saying its offer to buy back the bulk of its Dutch preference shares for about €450mln had been declared unconditional.

National Express shares travelled higher after posting a 12% increase in third quarter pre-tax profit.

Acacia Mining was on the front foot after saying it has decided not to increase its provision for tax owed to the Tanzania government even though Canadian parent Barrick more than doubled the estimate of the amount it owes.

 

11.10am: Retail sales fall sharply in October, CBI survey reveals

Retail sales fell the most since the financial crisis in the year to October as higher inflation put a squeeze on consumers’ disposal incomes, the Confederation of British Industry said.

The CBI’s Distributive Trades Survey, which measures sales activity across the distributive trades, showed that 50% of retailers reported a drop in sales volumes during the period compared to just 15% with an increase.   

The retail reported sales balance fell to -36 from +42 the previous period, well below expectations of 14.

It marked the steepest drop in sales volumes since March 2009 during the financial crisis.  

“It’s clear retailers are beginning to really feel the pinch from higher inflation. While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand," said Rain Newton-Smith, CBI chief economist.

“This is a critical time for a sector that employs three million people across Britain. The Government can give retailers, especially those on the High Street, some much needed relief in next month’s Budget by bringing forward the planned switch of business rates indexation from RPI to CPI.”

10.40am: Barclays hit by weak trading in investment bank

Barclays is the biggest faller on the FTSE 100 despite a 31% increase in third quarter pre-tax profits to £1.1bn as investors have focused on weakness in the lender's investment banking arm. 

Profits fell sharply at the Corporate and Investment Banking arm due to a sharp decline in revenues from fixed income, currencies and commodities trading.

"While this should not have been a surprise, given the trend seen in results from global integrated banking peers such as JP Morgan Chase, Citigroup and Bank of America, it does highlight the cyclical and volatile nature of the unit’s earnings," said Russ Mould, investment director at AJ Bell.

"The combination of potentially fickle markets, expensive staff and regulatory pressure mean that the investment banking arm is a low-multiple business in valuation terms and this is weighing upon the rating attributed to Barclays overall by the market."

9.50am: UK car production falls amid Brexit worries

UK car production fell 4.1% in September to 153,22 units, according to the Society of Motor Manufacturers and Traders. The domestic market suffered a 14.2% decline to almost 21,500 as business confidence weakened amid Brexit uncertainty.

SMMT chief executive Mike Hawes said: "With UK car manufacturing falling for a fifth month this year, it's clear that declining consumer and business confidence is affecting domestic demand and hence production volumes.

"Uncertainty regarding the national air quality plans also didn't help the domestic market for diesel cars, despite the fact that these new vehicles will face no extra charges or restrictions across the UK.

"Brexit is the greatest challenge of our times and yet we still don't have any clarity on what our future relationship with our biggest trading partner will look like, nor detail of the transitional deal being sought."

8.50am: Miners push Footsie higher

The FTSE 100 index pushed higher in early trading, recovering some of yesterday’s hefty falls, thanks to strength in heavyweight mining stocks and a slightly weaker pound, with all eyes on the latest European Central bank council meeting.

Around 8.45am, the UK blue chip index was up about 12 points at 7,459 having dropped 79 points yesterday after above forecast UK GDP growth fuelled Bank of England rate hike fears.

On currency markets, having risen yesterday, sterling eased back today, losing 0.1% versus the dollar at US$1.3244 and falling 0.2% against the euro at €1.1204 with the single currency awaiting the ECB meeting outcome which is expected to detail plans to taper its quantitative easing programme.

Connor Campbell, financial analyst at Spreadex said:  “Analysts are expecting Mario Draghi and his colleagues to announce the next stage of their QE tapering programme; one potential scenario is that the bond buying continues until at least September 2018, but at €20bn or €30bn a month rather than the current €60bn (which itself is down from €80bn at the start of the year).

He added: “This potential ‘extend but reduce’ approach seems to have tentatively pleased the euro.”

In London, miners led the blue chip recovery helped by firmer metal prices and a bullish note from Credit Suisse raising price targets in the sector, with Rio Tinto PLC (LON:RIO) the top performer, up 1,1% at 3,534.5p.

Consumer products giant Unilever PLC (LON:ULVR) was also higher, up 1% to 4,131.5p as it declared the offer for all its Dutch-listed preference shares unconditional as it restructures its capital, and on reports that plans for the disposal of its Spreads business are advancing.

But banking giant Barclays PLC (LON:BARC) was the biggest FTSE 100 faller, down 5% to 187.15p after its third quarter results disappointed following a weak trading performance from its investment bank.

Proactive news headlines:

Sirius Minerals PLC (LON:SXX) has struck an offtake deal to sell a large volume of the fertiliser product that will be produced from its North Yorkshire mine. The mine developer has agreed a deal with Wilmar Group, a Singapore-listed agribusiness group, for the use and resale of the POLY4 exclusively in South East Asia.

Medical-grade collagen manufacturer Collagen Solutions PLC (LON:COS) has hailed the “strength and quality” of its sales pipeline ahead of what it expects will be a busy second half of the year. The AIM-quoted company has said all along that it expects this year’s results to be second-half weighted, a point it reiterated again on Thursday.

One of the world’s leading microbiome scientists is to present OptiBiotix Health PLC’s (LON:OPTI) latest research at a large industry conference in San Diego next week. Professor Bob Rastall will speak at the Microbiome R&D and Business Collaboration on 2-3 November.

Flying Brands Limited (LON:FBDU) is hoping to use the data from its StoneChecker kidney stones medical imaging software product for a wider range of commercial applications than originally intended. There is also a higher level of interest than expected in publishing post-marketing research on the clinical usefulness of the StoneChecker software, the company said.

Giant observation wheel specialist Challenger Acquisitions Ltd (LON:CHAL) remains confident that full construction of the New York Wheel (NYW) project will recommence in the near-term. A court hearing is scheduled today in New York where the New York Wheel and the former wheel contractor will discuss the transition matters related to the extensive work done by the various subcontractors for the NYW Project.

Kin Group PLC’s (LON:KIN) return to AIM has been delayed after the group decided first to carry out a share consolidation. Shares in the shell are suspended and trading had been expected to resume this week but the share consolidation will require the approval of shareholders in a general meeting.

Anglo Asian Mining PLC (LON:AAZ) chief executive Reza Vaziri on Thursday told investors that the junior miner has been “extremely busy” on the ground in Azerbaijan. As production from the Gedabek mine has been ramping up and output has started at the Ugur open-pit, the company has turned attentions to exploration.

Jubilee Platinum PLC (LON:JLP) has seen a big increase in revenues and profits as platinum production from its tailings operation at the Hernic mine ramped up. Output from Hernic, in South Africa, rose to 2,874 ounces of platinum (PGM) in the three months to September compared to 808oz in the previous quarter.

6.50am: Gains expected

London’s FTSE 100 is expected to start Thursday positively, though macro attentions will likely be distracted (again) by central bankers.

The European Central Bank policy committee meets later today and ECB president Mario Draghi will deliver a press conference, meanwhile, over in the United States, an upcoming changing of the guard at the Federal Reserve opens up a degree of uncertainty for markets.

Rate speculation either side of the Atlantic naturally comes into play for equity markets.

“Yesterday’s sell off in stocks appears to have been precipitated by a similar sell off in bond markets as investors weighed up the prospect that we could well see a modest easing off of the accelerator in terms of loose monetary policy by the Bank of England, US Federal Reserve and the European Central Bank over the course of the next few months,” CMC Markets analyst Michael Hewson said in a note.

On Wall Street, the Dow Jones lost 112 points or 0.48% on Wednesday to close at 23,329.

The S&P 500 and Nasdaq, meanwhile, followed – falling 0.47% and 0.52% finishing the session at 2,557 and 6,563 respectively.

In Asia, Japan’s Nikkei held positive ground albeit not very much of it. The Japanese benchmark was up 15 points or 0.07% at 21,722. Meanwhile, the Shanghai Composite was trading up 0.37% to 3,409. Hong Kong’s Hang Seng dipped 0.38% to 28,198.

Australia’s ASX 200 moved higher, gaining 0.18% to 5,916.

In London, CFD and spreadbetting group IG Markets sees the FTSE 100 up around 18, calling the blue chip benchmark at 7,459 to 7,463 just over an hour before Thursday’s open.

Barclays PLC (LON:BARC) is expected to provide the morning’s corporate news highlight as it follows Lloyds in the schedule of UK banks updating the market on the year’s third quarter.

Signigicant events expected on Thursday October 26:

Trading update: Avocet Mining PLC (LON:AVM), KAZ Minerals PLC (LON:KAZ), National Express Group PLC (LON:NEX), RELX PLC (LON:REL)

Finals: Connect Group PLC (LON:CNCT), Redefine International PLC (LON:RDI)

Interims: C&C Group PLC (LON: CCR)

Ex-dividends: Barratt Developments PLC (LON:BDEV), Ferguson Plc, ITV PLC, Rolls-Royce PLC

Economic data: GfK German consumer confidence; US weekly jobless claims; US balance of trade; US pending home sales

Around the markets:

  • Sterling: US$1.3172, down 0.68%
  • Gold: US$1,274.21 an ounce, down 0.26%
  • Brent crude: US$58.13 a barrel, down 0.53%

City Headlines:

  • UK car manufacturing falls for fifth consecutive month in September - The Independent
  • Surprise growth in economy set to bring interest rate rise - The Times
  • Qantas boss Alan Joyce feted for backing gay marriage - BBC News
  • FCC to Loosen Rules on Local Media Ownership - New York Times
  • New screenings to start for all US-bound airline passengers - Washington Post
  • Uber Faces Engineers' Lawsuit Alleging Gender, Race Bias – Bloomberg

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