FTSE 100 closes in red
ECB leaves interest rates unchanged
Dollar continues its retreat
FTSE 100 closed lower as the strength of the Euro took its toll on European equity markets.
Britain's blue-chip benchmark finished over 27 points lower at 7,615, while FTSE 250 was also down - off around 16 points at 20,521.
David Madden, analyst at CMC Markets, said: "The rally in the euro has dented eurozone equity markets.
"The European Central Bank (ECB) kept rates unchanged, but the press conference that followed showed that some members of the ECB are a little more hawkish than others, and this played a role in the decline of the DAX and CAC 40."
The benchmark French index is down almost 14 at 5,481, while the German Dax is off 116 points at 13,298.
In the currency markets, sterling is down 0.58% against the Euro.
Top riser on Footsie was Smith & Nephew PLC (LON:SN.), which added 4.15% to 1,293.5p after being upgraded by heavyweight JP Morgan Cazenove.
Caz now has an overweight recommendation on the shares, having previously been neutral on the stock and the target price has been increased to 1,411p from 1,369p.
The biggest laggard on the top tier exchange was Sage Group, which shed 2.29% at 750.60p.
Weak dollar continues..
The weakness of the dollar continued to cast a shadow over London's blue-chips.
Heading into the last half hour of trading the FTSE 100 was down 26 at 7,617.
“It was the euro’s turn to give the dollar a kicking this Thursday, with the currency ignoring Mario Draghi’s attempts at dovishness during the latest ECB press conference,” commented Connor Campbell of Spreadex.
“Despite the central banker stating that at present he sees ‘very few chances that interest rates could be raised at all this year’, the euro remained satisfied enough that 2018 will eventually bring about some kind of QE winding down. This caused it to shoot above $1.25 against the dollar for the first time in 3 years with a 0.9% surge, while forcing the pound back into the red by 0.3%,” he added.
“While the pound lost its way against the euro, it continued to gobble up the greenback, climbing half a percent to tickle $1.43. This put the FTSE in a fairly foul mood,” Campbell added.
15.15: Draghi powerless to stop the euro from racing higher
Having spent most of the day nursing small gains, the FTSE100 turned negative, despite another firm start on Wall Street.
The FTSE 100 was down 26 at 7,617. Across the pond, the Dow Jones was up 59 at 26,310 and the broader-based S&P 500 was up 0.4 at 2,838.
The analysis of the press conference held by European Central Bank president Mario Draghi is in full-flow, against a background of a strong euro, which has gained a cent against the greenback.
“The euro jumped past US$1.25 for the first time in over three years after the ECB appeared to be more relaxed about the currency’s recent appreciation than many market participants expected; however, there were few Expressly hawkish signals in the press conference with Mario Draghi [expecting] to see EURUSD break out of its current pattern,” wrote Neil Wilson at ETX Capital.
Nancy Curtin, the chief investment officer at Close Brothers Asset Management, said Draghi is playing it safe.
“Growth has exceeded expectations, but there remains slack in some parts of the Eurozone economy and the ECB is clearly reluctant to use better growth as a springboard for any drastic monetary policy changes. The growth improvement is encouraging, and extremely strong PMI readings point to continued expansion, but we can’t ignore the disappointing wage growth. If that improves, ECB hawks could win out and gradual interest rate rises over the next couple of years become much more feasible,” she suggested.
“For now, we have forward guidance on forward guidance. In the meantime, the ECB’s monthly 30bn euros asset purchasing programme should support confidence in the bond markets and limit euro appreciation,” Curtin concluded.
James Hughes, at AXI Trader, said the statement, decision and press conference were very similar in tone from the president as the December version.
“The change was in the type of question he was asked as almost every journalist present asked about the impact of the stronger euro on the Eurozone as a whole. The president’s answer was always the same, and he seemed uninterested in the euro, stating that the ECB do not focus on the currency rates. He also answered emphatically when asked whether rates would move by stating he sees very few chances that rates would rise in 2018,” Hughes said.
While the euro is racing higher against the dollar, sterling is also making progress against the US currency, rising above US$1.43 – up seven-tenths of a cent.
That will not please the finance directors of those Footsie companies that earn the bulk of their revenues in dollars – which is most of them.
Down among the tiddlers, the feel-good story of the day was Summit Therapeutics PLC (LON:SUMM), which rose 15.5% to 205p on early findings from its PhaseOut DMD clinical trial.
As the name of the trial suggests, the trial is to test a treatment for Duchenne muscular dystrophy (DMD) - one of the most common, fatal genetic disorders diagnosed in children around the world.
Today's data revealed that treatment with ezutromid resulted in a statistically significant and meaningful reduction in muscle damage as measured by a 23% decrease in mean developmental myosin in muscle biopsies at 24 weeks compared to the baseline.
A total of 14 of 22 patients showed a decrease in developmental myosin, with five of those showing a reduction of more than 40%.
1.55pm: Draghi confident inflation will veer down towards its target of sub-2%
European Central Bank (ECB) Mario Draghi has mastered the art of stating the bleedin' obvious with an assertion that exchange rate volatility creates uncertainty.
In his press conference, which followed confirmation earlier of the status quo on the interest rates front, Draghi said recent economic data confirmed a “robust pace” of economic expansion that picked up more than expected in the second half of 2017.
The pick-up strengthened the ECB's confidence that inflation will veer towards its target of just below 2% over the long -term.
Really? #ECB's Draghi says ECB doesn't favor any country in QE program. pic.twitter.com/dF9h7TtEMd
— Holger Zschaepitz (@Schuldensuehner) January 25, 2018
On the home front, the FTSE 100 continued to trade in a narrow band just above last night's close; it was up 13 at 7,656.
Smith & Nephew was the top riser on the Footsie after an upgrade from Cazenove (see below) while Bunzl PLC (LON:BNZL) was in the silver-medal spot after Barclays Capital abandoned its neutral position and turned bullish on the distribution and outsourcing services provider.
The shares rose 2.2% to 1,983.5p, a good 516.5p below Barclays' target price.
1.35: Blue-chips little changed; ECB's interest rates completely unchanged
As expected, the European Central Bank (ECB) left its interest rates unchanged.
Attention now switches to ECB's president Mario Draghi's press conference, which has just started with the president wishing everyone present a happy new year.
Draghi: Net asset purchases, at the new monthly pace of €30 billion, are intended to run until the end of September 2018, or beyond, if necessary
— European Central Bank (@ecb) January 25, 2018
Meanwhile, in London, the FTSE 100 had roused itself to notch up a double-digit gain – up 15 at 7,658.
Medtech giant Smith & Nephew PLC (LON:SN.) was leading the advance – in the manner of a patient in need of a hip replacement – after being upgraded by JP Morgan Cazenove.
Caz now has an overweight recommendation on the shares, having previously been neutral on the stock.
The target price has been increased to 1,411p from 1,369p; the shares rose 53.34p to 1,295.34p.
11.45am: Retailers receive some mixed news
Investors remain firmly in wait-and-see mode today.
The FTSE 100 was up 5 at 7,649 as the markets awaited developments from Davos and this afternoon's press conference from European Central Bank president Mario Draghi.
Meanwhile, hard-pressed retailers received another punch to the solar plexus from the latest monthly CBI Distributive Trades survey.
The volume of retail sales grew for the third consecutive month in the year to January, but at a slower pace than anticipated.
The survey of 107 firms showed that, in the year to January, retail sales grew but sales for the time of year were the weakest against seasonal norms in over four years. Meanwhile, orders placed on suppliers fell, also against expectations of growth, the CBI reported.
“Retailers have seen fairly modest sales growth this month overall, but it is online retailers who have set the pace during the January sales,” commented Anna Leach, head of economic intelligence at the CBI.
“Household spending will remain under pressure this year from higher inflation and low wage growth, which will continue to weigh on sales growth in the retail sector,” she added.
As one of those online retailers setting the pace, ASOS plc (LON:ASC) was in many investors' shopping baskets this morning after a trading update.
UK retail sales rose 23% to £300.9mln (2016: £244.0mln) in the four months to December 31.
The shares were up 1.9% at 7,007.5p.
Sector peer Next Plc (LON:NXT), which is targeting a somewhat different segment of the market to ASOS, received some love from RBC Capital Markets, which upgraded the clothes flogger to 'outperform' from 'sector perform'.
RBC increased the price target to 5,500p from 4,800p, prompting a mark-up in Next's share price to 5,024p from 4,912p overnight.
10.30am: The FTSE 100 is a bit like a stopped watch at the moment
UK's blue-chips continue to make agonisingly slow progress but attention is largely focused elsewhere, namely on the forex markets, Davos and the European Central Bank.
The FTSE 100 was up 10 at 7,653.
On the foreign exchange markets, sterling was up 0.2% against the US dollar at US$1.4263.
“It feels like what we expected to happen to the dollar over the entirety of 2018 has in fact transpired in first few trading weeks of the year,” suggested Viraj Patel at Dutch finance house ING.
“The latest fuel that has been added to the fire of $ weakness was US Treasury Secretary Mnuchin’s comment that a 'weaker dollar is good' for the US. While one could see this as a fairly blasé comment, history books in the future may show this as a marked shift in US economic policy, but equally this isn’t new news; the administration’s desire for a weaker dollar has been embedded in our thinking since last April – when President Trump said in an interview that he felt the US dollar was 'too strong'. We suspect it is the sheer frankness of Mnuchin’s comment and the idea that the Trump administration is happy to employ ‘America First’ policies – even if it means at the cost of a weak $ – that has caught markets by surprise,” Patel added.
“Still, we’re scratching our heads for catalysts to see a break in this weak $ trend – and at the moment it could be one way traffic (bar any major surprises from the ECB today),” Patel admitted.
Talking of the European Central Bank (ECB), the consensus view is that the three key interest rates will be left unchanged.
“However, that’s not to suggest that Mario Draghi’s subsequent press conference will contain nothing of interest,” commented David Morrison at forex trading platform operator GKFX.
“The key issue for traders is whether the ECB President comments about the current strength of the euro. In the same way that dollar weakness is a great help to the US economy, as pointed out yesterday by US Treasury Secretary Steve Mnuchin, euro strength is a real pain for the currency zone’s exporters, making them less competitive. It also has the effect of tightening monetary policy in a way that the ECB cannot control directly, while making it more difficult for the central bank to hit its inflation target,” Morrison opined.
Meanwhile, back in the slightly stultifying London equity market, Kier Group PLC (LON:KIE) has provided reassurance that it is unlikely to go the way of Carillion with an upbeat trading statement.
The construction group said it traded in line with expectations in the first half of its financial year and, just in case we were not paying attention the first time, it reassured investors about contracts it operated with Carillion.
Following the collapse of Carillion, Kier and contractor Eiffage have assumed responsibility for the HS2 contract. Kier has also taken full responsibility for the smart motorways contract.
The group reiterated these contracts are “all performing well, operationally and financially”.
Numis Securities reiterated its 'buy' recommendation, saying the group's reduced debt exposure will be comforting to shareholders.
“Reducing net debt should give investors confidence that debt increases to date are purely a function of discretionary asset investment as part of the Kier business model. This clearly illustrates that there are no trading or balance sheet parallels to Carillion, so recent share price weakness is misplaced,” the broker said.
That recent share price weakness was reversed this morning with the shares up 14% at 1,095p.
Another company pulling out of a recent slump is Minds + Machines Group Limited (LON:MMX), the top-level internet domains specialist.
There is no news on the strategic review or bid approaches, but the company did cheer investors with the revelation that 2017 underlying earnings will be a tad ahead of expectations after a strong second half.
"To have transformed the company from a loss-making business to a profitable one on an ongoing basis within 24 months is an achievement the whole team should be proud of,” said Toby Hall, the chief executive officer of MMX.
“2018 has started positively and I look forward to updating shareholders in April with our strategy for building on this profitable platform and delivering value to shareholders," he added.
House broker finnCap has left its forecasts unchanged but said it continues to view MMX as “materially undervalued”.
09.30: FTSE 100 makes slow progress, as weakness of dollar continues to weigh on sentiment
The FTSE 100 continued to mark time with investors keeping one eye on the foreign exchange markets and one on events at Davos.
US Treasury Secretary Steve Mnuchin has again been talking down the dollar, which is of a concern to investors in the multitude of FTSE 100 companies that earn a lot of their revenues overseas in dollars.
The pound was buying US$1.4248 on the forex markets, up 0.11 cents on the day.
“Any further dollar-related comments from Davos, especially with Trump arriving in the Alpine town, could aid or undermine the greenback, while the euro will be focused on this afternoon’s ECB rate vote and subsequent press conference, with the currency hoping Draghi and co. build on the slightly hawkish tone used in the last set of meeting minutes,” observed Connor Campbell at Spreadex.
Despite all the fevered conjecture, the FTSE 100 was barely changed, up 9 at 7,652.
Spirits and Guinness maker Diageo plc (LON:DGE) provided the Footsie with an early morning pick-me-up, rising 29.5p to 2,572p on the back of interim results.
“Diageo is delivering pretty much exactly as promised – mid-single digit top-line growth with cost savings boosting profit performance. It helps that the group is enjoying some fairly benign economic conditions since sales of its premium spirits tend to reflect trends in global growth,” commented Nicholas Hyett, an equity analyst at Hargreaves Lansdown.
“Tequila continues to enjoy runaway success – although coming from a low base, spectacular 37% volume growth should be taken with a pinch of salt – while Fever-tree investors will be pleased to hear the gin boom shows little sign of slowing, with Gordon’s and Tanqueray supporting 18% growth in volumes in the half,” he added.
Bid target SKY PLC (LON:SKY) was wanted after its half-year results.
The shares climbed 9.15p to 1,032.65p after the pay-TV pioneer posted a 5% year-on-year increase in like-for-like revenue in the six months to the end of December.
Underlying earnings (EBITDA) rose 10% to £1.1bn.
Open: Quiet start for Footsie as the big wheels roll into Davos
There wasn’t a great deal of movement on the FTSE 100 as it nudged ahead just three points to 7,646.14.
However, it defied the early negativity from the spread betting firms, which called the index lower, to follow the lead set by Asia’s main markets overnight.
Attention Thursday were on matters unfolding further west (although still slightly east of the UK) - at the upmarket ski resort of Davos, which is host to the World Economic Forum.
This is where billionaires and politicians fly in on private jets and make empty pledges on the environment/poverty/inequality [tick where appropriate]. You get the general drift – it’s a shindig for the global elite designed to maintain the status quo.
The American business channels love it as they get to dress up in fur-lined winter coats and have something with which to fill their usually empty rolling news schedules.
The set piece Thursday, from what we can glean, is the meeting of Donald Trump and Theresa May. We wonder if the latter will get a word in edgeways.
Also in attendance, and a rather incongruous figure given his Trotskyist leanings, will be John McDonnell, the Labour Shadow Chancellor. One wonders whether he will eschew the Davos uniform of choice – a large hooded puffer jacket and snow boots – for something more in keeping with his image. An old NCB donkey jacket and a pair of Doctor Martens perhaps?
Anyway, dragging ourselves away from this lavish beano, the Footsie was led by replacement hip maker Smith and Nephew (LON:SN.) in the wake of an upgrade to ‘overweight’ by JP Morgan Cazenove. The shares advanced 2% on the back of the bank’s more bullish stance.
Proactive news headlines:
Internet domains specialist Minds + Machines Group Ltd (LON:MMX) expects underlying earnings to be slightly ahead of expectations for 2017 after a strong second half.
Itaconix Plc (LON:ITX) has licensed out non-core polymers it has developed to tremco-illbruck, a sealant and boding specialist. The technology will be used to improve tremco’s construction sealants.
Accesso Technology Group PLC (LON:ACSO) expects adjusted underlying earnings (adjusted EBITDA) to be “substantially ahead of expectations” when it reports its full-year results for 2017 in March.
Metal Tiger PLC (LON:MTR) has updated investors on the joint venture with MOD Resources Limited (ASX:MOD) in Botswana where a prefeasibility study, for the T3 Open Pit project, is due to be completed in the coming days. At the same time, it added that a major regional exploration programme is also underway focussing on targets outside the T3 area.
Ergomed Plc (LON:ERGO) posted another year of strong top-line growth and said 2018 is shaping up to be another bumper 12 months. The pharma services and drug development company posted total sales of £47mln, up 21%, while net service revenues were ahead 35% at £39mln.
Asia-Pacific online gaming and media group PCG Entertainment Plc (LON:PCGE) has settled with its former boss, bringing to an end a ten-month legal battle.
Haydale Graphene Industries PLC (LON:HAYD) has reported a sharp pick-up in interim sales helped by the separation of its business into two units.
The fourth quarter was the best of the year for sales of Revolution, the flagship product of portfolio analytics services provider StatPro Group PLC (LON:SOG).
Trading and risk management software provider Brady Plc (LON:BDY) continues to make rapid progress in its transition to a SaaS model, with recurring revenues accounting for two-thirds of group revenues in 2017.
Bacanora Minerals Ltd (LON:BCN) has filed the technical report for its feasibility study on the Sonora lithium project in Mexico.
Cabot Energy Plc (LON:CAB) chief executive Keith Bush has told investors that the Canada focussed oil firm’s evolution into a significant producer starts now. The company, which recently bought-out its Canadian partner to take 100% of its oilfield assets, revealed that production averaged 827 barrels of oi per day through the first half of January, and output for 2017 averaged 400 bopd.
Europa Oil & Gas Holdings Plc (LON:EOG) has announced the appointment of a new chairman, with Simon Oddie to replace Colin Bousfield. Also, the company has also hired former Petroceltic boss Brian O’Cathain as a non-executive director.
Strategic Minerals Plc (LON:SML) (USOTC:SMCDY) has announced that its Ebony Iron Pty Ltd subsidiary has completed the binding exchange of contracts for the acquisition of Leigh Creek Copper Mine Pty Ltd from Resilience Mining Australia Pty Ltd for a total consideration of AS$3.00mln (approximately £1.71bn).
Savannah Resources Plc (LON:SAV) has strengthened its lithium management team as it develops its Mina do Barroso lithium project in Portugal.
6.45am: FTSE stuck in reverse gear?
The FTSE 100 is expected to slip back again in early trading on Wednesday, adding to the previous session’s slide despite gains by US and Asian markets as sterling’s strength continues to be a drag.
Spread betting firm CMC Markets expects the UK blue chip index to open around 6 points lower at 7,367, having dropped 88.43 points on Wednesday.
On currency markets, the pound held firm against an embattled dollar and also found gains versus the euro.
Michael Hewson, chief market analyst at CMC Markets UK, commented: “The US dollar has been on the back foot for several weeks now, and while this week’s decision by the US government to impose tariffs on solar panels and washing machines didn’t help sentiment there was a belief that this was merely a negotiating gambit in order to exert some pressure with respect to upcoming trade negotiations.”
He added: “This belief was undermined by some fairly punchy rhetoric from US Commerce Secretary Wilbur Ross which suggested that the US meant business and was prepared to take further measures if there was any retaliation.”
Diageo and Sky update
On the corporate front, updates from drinks group Diageo plc (LON:DGE) and satellite broadcaster Sky PLC (LON:SKY) should draw the most attention,
Guinness stout to Johnnie Walker firm Diageo, the world's largest spirits company, reported a 1.7% increase in half-year sales as growth was curbed by foreign exchange rates and issues including a later Chinese New Year and a ban on selling alcohol near Indian highways.
Sky posted a 5% rise in its first half revenue to £6.7bn and said it had attracted 365,000 new customers taking its base to 22.9bn just two days after Rupert Murdoch's bid for the company was ruled to be not in the public interest,
Sky said it remained confident in its strategy, underpinned by its range of entertainment and sports content.
Away from the blue chips, AIM listed online fashion retailer ASOS beat forecasts for sales growth in the key Christmas period, with total retail sales up 30%to £790.4mln putting it firmly in the sector's winners' camp for festive trading.
Significant events expected on Thursday January 25:
Trading updates: ASOS plc (LON:ASC), Daily Mail & General PLC (LON:DMGT), Brewin Dolphin PLC (LON:BRW), CMC Markets Plc (LON:CMC), Countryside Properties PLC (LON:CSP). Close Brothers Group PLC (LON:CBG), Fuller Smith & Turner PLC (LON:FSTA), Greene King PLC (LON:GNK), Genel Energy PLC (LON:GENL), ITE Group PLC (LON:ITE), Kier PLC (LON:KIE), Restaurant Group PLC (LON:RTN), St James’ Place Capital PLC (LON:STJ)
Production reports: Anglo American PLC (LON:AAL), Antofagasta PLC (LON:ANTO), KAZ Minerals PLC (LON:KAZ)
Interims: Diageo plc (LON:DGE), Sky PLC (Q2) (LON:SKY), Renishaw PLC (LON:RSW), CPL Resources PLC (LON:CPS)
Finals: Blue Prism Group plc (LON:PRSM)
Around the markets:
- Sterling: US$1.4290, up 0.3%
- Gold: US$1,355.90 an ounce, unchanged
- Brent crude: US$66.29 a barrel, up 1.0%
City Headlines:
- Gagging orders that prevent women from reporting sex harassment will be targeted by Theresa May after hostesses were allegedly groped at one of the country’s biggest fundraising events, reports the Times.
- The Presidents Club, whose annual all-male dinner was attended by figures from finance, politics and entertainment, said that it would close after the scandal.
- Trinity Mirror shareholders have warned they are ready to oppose its planned takeover of the Express if the company agrees too high a price with the newspaper’s owner Richard Desmond, writes the Telegraph.
- Theresa May will tell the world’s biggest investment companies today to put pressure on social media providers to remove terrorist and extremist content. In a speech to be given to the World Economic Forum in Davos, reports the Times.
- Facebook has defended its plans to purge the website of its fake news problem after it emerged that the social network is using a simple two-question survey to gauge users' trust in publications, reports the Telegraph.
- The pound is on track for its strongest month for eight years, giving relief to Britons planning foreign holidays but signalling an end to the benign spell for exporters. Sterling surged above the $1.42 mark and came close to €1.15 on the back of strong jobs and wages data yesterday, the Times reports.
- Tens of thousands of businesses exposed to the collapse of Carillion face an even more uncertain future because they did not take out credit protection against its failure, the Times reports.