FTSE 100 closes in red
Euro pummelled after ECB statement but US dollar is rampant
ECB leaves its policies unchanged
FTSE 100 closed Thursday lower as traders fret about the world economy.
The UK's premier stock index finished down nearly 24 points at 6,818 - the third negative finish in a row.
Its midcap cousin, FTSE 250 , was however higher, adding over 44 points at 18,627.
Earlier, the European Central Bank (ECB) had voted to keep interest rates on hold as president of the central bank Mario Draghi set a measured tone.
"Given recent weak data and inflation reading at just 1.6% a dovish Draghi was what the market was expecting. And a dovish Draghi is what the market got. Inflation forecasts were downgraded and risks, Draghi said, “had moved to the downside”," said analyst Fiona Cincotta at City Index.
The top laggard on the Footsie was communications giant Vodafone (LON:VOD), which dropped 3.50% to 144.04p, as its subsidiary Vodacom reported a decline in service revenue in South Africa in the final three months of 2018.
3pm: Shuffling sideways
The Footsie spent most of the afternoon shuffling sideways, largely indifferent to a mixed opening on Wall Street and developments at the ECB.
The FTSE 100 was down 19 points (0.3%) at 6,824, despite sterling falling against the US dollar, which usually gives the index’s many multinational stocks a lift.
“A lack of fresh, substantial detail on the market’s current concerns – the US/China trade war and Brexit – led to another rather dull session,” said Connor Campbell of Spreadex.
As a piece of commentary, it was hard to gainsay it.
“The US open failed to instil a bit of energy into proceedings; if anything the Dow’s Thursday debut only added to the muted atmosphere, the index starting the session unchanged around the 24600 mark. The Dow’s relative reticence may be related to next week’s visit from Chinese Vice Premier Liu He, one of the landmark moments in terms of the ongoing trade talks between the two superpowers ahead of the end of the ceasefire in late February,” Campbell added.
3.30pm: Back in the red
London’s leading shares were back in the red after a subdued statement on the prospects of the eurozone economy from the ECB’s Mario Draghi.
The FTSE 100 was down 23 points at 6,819.
“In theory, this year was to herald the start of the ECB policy normalisation process. That may still turn out to be the case, but near-term downside risks are growing,” declared Michael Metcalfe, the global head of macro strategy at State Street Global Markets.
“Our online inflation series, PriceStats, suggests headline inflation is set to fall rapidly in the Eurozone in Q1. In response, the ECB’s first policy step may need to allay fears of a sharp contraction in its balance sheet in the next two years by offering another targeted longer-term refinancing operation (TLTRO). Once again European market pessimism could be rescued by acronym [sic] along with generous liquidity for the banking system,” Metcalfe said.
2.35pm: Draghi concedes risks to the downside have increased for the eurozone economy
US benchmarks opened slightly lower with the exception of the tech-heavy NASDAQ Composite.
The Dow was off 36 points (0.1%) at 24,540 and the S&P 500 was down a couple of points at 2,636.6. The NASDAQ, however, was 20 points firmer (0.3%) at 7,046.
Back in Blighty, the FTSE 100 was one of the few European indices loitering in the red, down 24 points (0..4%) at 6,819 after the press conference by Mario Draghi, head of the European Central Bank/
“Mario Draghi is trying to put the ECB on a recessionary footing with one arm tied behind his back,” suggested JR Zhou, a market analyst at online trading platform operator, Infinox.
“His grimly dovish prediction that ECB interest rates won’t budge until after summer at the earliest was a masterpiece of understatement,” the analyst declared.
“Monitoring the persistency of risk factors, trade tensions between China and the US, Brexit and a slowdown in China. We have a long list of instruments and we stand ready to use them, all of our toolbox still available.” Mr Draghi— marapas (@marapas) January 24, 2019
1.30pm: The calm before the bland
The calm continues before what may well be the even greater calm of the European Central Bank’s (ECB) interest rate decision.
The FTSE 100 was down a couple of points at 6,841 as pundits queued up to predict the ECB would leave its key interest rate unchanged.
“It is unlikely that the ECB will raise interest rates any time soon as inflation drifts further away from the bank’s 2% target rate and economic growth in Europe slumps,” commented Stephen Hubble at payments specialist, Centtrip.
“In addition, figures from Germany’s manufacturing sector have been disappointing as exports to China have dropped. Seen as the Eurozone’s economic powerhouse, the data suggests that growth in the bloc could be slowing faster than anticipated,” he added.
With London’s equity market becalmed, attention switched to the foreign exchange markets, where the pound was down 0.4 cents against the greenback. The ICE US dollar index was up 0.4% at 96.46 after weekly US jobs data, so sterling was not alone in giving ground to the buck.
The number of Americans applying for unemployment benefits through state programmes fell below 200,000 for the first time since 1969 to 199,000, down 13,000 week-on-week.
1.00pm: The Footsie is becalmed
London’s leading shares index crept into positive territory helped by expectations of a flat start across the pond.
The FTSE 100 was up four points at 6,847.
“Wall Street futures are currently pointing towards a largely unchanged start to Thursday’s session, having recovered from losses incurred overnight by tracking gains seen across much of Europe at the open. There’s mounting expectation that Mario Draghi will downgrade the ECB’s outlook for the Eurozone economy at this afternoon’s ECB press conference so the resulting expectation of Euro weakness is bolstering EUR denominated stocks,” commented James Hughes, the chief market analyst at Axi Trader.
#FLYB— Alex (@Alexios1201) January 24, 2019
Shareholders should note that:
· If the sale of the operating businesses is completed, Flybe Group plc will then be a non-trading entity with neither subsidiaries nor other material assets
So technically it is a cash shell with 1p cash????https://t.co/798FLtwMj5
Away from the large caps, bid stock Flybe Group PLC (LON:FLYB) was sharply lower after issuing a statement intended to clarify the process by which it proposes to sell its operating business to Connect Airways.
Shares in Flybe were down by 30% at 4.5p.
12.05pm: Leading shares index continues to trade sideways
The Footsie has traded sideways within a narrow band for much of the day in the absence of any UK macroeconomic data to affect sentiment.
The Anglo-Dutch household goods producer was cut to ‘underperform’ from ‘hold’ by US broker Jefferies.
Auto Trader Group PLC (LON:AUTO) shifted into reverse, retreating 3.9p to 452p, after Peel Hunt tempered its enthusiasm for the stock; the new rating is ‘add’, down from ‘buy’ previously, while the price target has been trimmed to 500p from 510p.
11.00am: Footsie back in the red after briefly moving into positive territory
Having had a brief foray into positive territory, the top-shares index was back in the red, with attention, unusually on Europe’s economy.
The European Central Bank is set to announce its interest rate decision latest today in the wake of a Eurozone purchasing managers’ index (PMI) that fell to 50.7 in January from 51.1 the month before.
“The big question about the eurozone economy is currently when the bottom of the slowdown will be reached. A bounce back was already expected in 4Q, but even at the start of the new year there are few signs of recovery,” commented Bert Colijn, a senior economist covering the Eurozone beat at ING Economics.
“The rate of output growth was the weakest since mid-2013 and new orders for goods fell for the fourth month in a row, according to the survey. Dropping export orders were again an important factor, indicating that the weaker global growth environment is as much part of the slowdown story as one-off domestic factors,” he added.
According to Craig Erlam at Oanda, “you don’t have to look much further than this morning’s PMI data from the eurozone, Germany and France to see that the region is struggling. The data has been on a downward trajectory for the last year and with German manufacturing and French services slipping into contraction territory, talk of possible recession is only going to increase. Not an ideal time to be tightening monetary policy then.
“With that in mind, the ECB is widely expected to push back expectations for its first post-crisis era rate hike, which was initially being eyed for the end of the summer. They may hold off on this today though, instead waiting until March when they have new economic projections on which to base it on. That’s not to say that Draghi won’t hint that such a move is likely, with the new projections likely being revised lower based on the numbers we’re already seeing,” he added.
The FTSE 100, which contains a number of companies that regard the Eurozone as their primary market, was down 16 at 6,827.
Vodafone PLC (LON:VOD), down 2.7% at 145.3p, was the second biggest faller among blue-chips as its subsidiary, Vodacom, reported a decline in service revenue in South Africa in the final three months of 2018.
“With news out that their South African unit Vodacom is not performing as well as expected, this further puts pressure on the performance of its European business for its Q3 earnings,” suggested Jordan Hiscott, the chief trader at ayondo markets.
“The previous set of earnings saw the stock move off support at 143p to trade as high as 163p in the subsequent weeks; however, with the FTSE heavyweight down an astounding 31% on a 52-week basis, clearly the company finds itself in an embattled position, having taken on huge amounts of debt,” he added.
“The jewel in the crown for Vodafone is its dividend, currently pay a generous 9%, a figure many investors will look on with delight. My concern on this is with all high yield dividend stocks – caveat emptor, buyer beware. The dividend can always be cut, especially with the conditions the company currently finds itself in,” Hiscott warned.
In a shocking development, the Office for National Statistics has revealed that average weekly household spending in the 2018 financial year (to end of March 2018) was highest in London and the South East, at more than £650.
The average for the UK as a whole was £572.60, its highest level after adjusting for inflation since the financial year ending March 2005.
9.30am: Back to square one
The Footsie has wiped out most of its losses, tracking European indices that are higher ahead of today’s European Central Bank meeting.
“There is little expected on the rate front: the Eurozone’s central bank is expected to leave rates unchanged not only this month but most likely until September; however, what will attract more attention will be the bank’s comments about the growing risks to the region’s economy,” Fiona Cincotta, a senior market analyst at City Index.
“The bank’s President Mario Draghi recently said that slowing global demand was affecting the Eurozone’s growth but that the ECB’s accommodative monetary policy, which had been in place until the end of December, had helped keep domestic demand high,” she added.
Investors also cut their losses on 888 Holdings PLC (LON:888), the online gaming sites operator, after its chief executive, Itai Frieberger, abruptly stood down from the position to be replaced by Itai Pazner, the chief operating officer.
Shares in 888 were down 2.6% at 164.2p and are at about half the level they were back in May.
8.30am: Dull start for Footsie
The FTSE 100 ignored Wall Street and took its cue from Asia as it drifted 8 points lower to 6,834.72.
Traders were presumably keeping their powder dry ahead of the European Central Bank call on interest rates.
While the decision itself appears cut and dried (no change), the ECB president Mario Draghi’s comments will be closely scrutinised in the light of softer than expected manufacturing and consumer confidence data.
“Concerns over the slowing of momentum in the economy have been expressed by ECB policymakers over the past few weeks,” said markets watcher Jasper Lawler of London Capital Group.
“There is little doubt that Draghi will hit a dovish tone in the press conference as he highlights economic developments are weaker than expected with global risks still prominent.”
A 1.7% rise in the share price of St James’s Place (LON:STJ) was more a sigh of relief rather than a whole-hearted endorsement of the upmarket investment group.
On AIM, a sparkling trading update from mixer drinks company Fevertree (LON:FVR) pushed the stock 9% higher.
Proactive news headlines:
GP surgeries and primary care specialist Primary Health Properties PLC (LON:PHP) is increasing the increase the size of its portfolio to 479 properties worth £2.3bn through a merger with MedicX Fund (LON:MXF). The merger values MedicX shares at 88.7p or £393mln in total. PHP shareholders will own 69% of the enlarged company.
Respiratory disease specialist Circassia Pharmaceuticals PLC (LON:CIR) has acquired the exclusive US and Chinese commercialisation rights to AirNOvent – a treatment for persistent pulmonary hypertension of the newborn.
Drugs developer Shield Therapeutics PLC (LON:STX) saw an explosive increase in revenues in the second half of 2018 thanks to its commercialisation agreement with Norgine. A trading update covering the first half of the company’s current fiscal year revealed revenues for the period are expected to clock in at around £11./9mln, up from £637,000 in the corresponding period of 2017.
88 Energy Ltd (LON:88E, ASX:88E) told investors that it expects to mobilise the drill rig for the Winx-1 exploration well in the next seven days. It comes as the company, in a statement, said that ice road construction to the well site is now around 85% complete.
Tower Resources PLC (LON:TWR) has launched a placing to raise £1.7mln through a share placing and a subscription to support the funding of a drill programme at the Njonji area of the Thali project, in Cameroon. It intends to sell some 170mln new shares priced at 1p.
BlueRock Diamonds PLC (LON:BRD) has temporarily suspended operations at its Kareevlei mine in South Africa due to a section 54 notice from the country’s mining regulator.
6.45am: FTSE 100 set for a slow start
The FTSE 100 index is expected to slip back on Thursday, extending Wednesday’s falls in spite of gains overnight by US blue-chips, with Asian markets more subdued as US/China trade war issues rumble on, and ahead of the latest European Central Bank policy meeting.
Spread betting firm IG expects the blue-chip index to open around 7 points lower at 6,845, having shed 58.51 points yesterday after dollar earners were pulled back by a rally in the pound.
Overnight on Wall Street, the Dow Jones Industrials Average ended 171 points, or 0.7% higher at 24,575 buoyed by strength in tech stocks after strong results from IBM in spite of ongoing political worries over the US government's partial shut-down stand-off.
But Asian trading was weaker today, with Shanghai’s Composite index down 0.3% on the trade war concerns, while Japan’s Nikkei 225 index lost 0.1% as a business survey showed manufacturing growth in the country stalling in January.
On currency markets, sterling consolidated yesterday’s strong gain against both the US dollar and the euro with investors positioning for the next Brexit twists as Theresa May tries to build a consensus to accept a deal.
ECB meeting no change
The main macro-economic focus will on be the latest European Central Bank meeting although no changes to EU monetary policy are expected following the end of quantitative easing last year.
In a preview, economists at ECB said: “With only (a) few signs of a bottoming out of the recent loss of momentum, lingering ‘no deal’ Brexit turbulence and hardly any inflationary pressure, calls on the ECB to get back into crisis mode are growing louder.
“In our view, however, there is still no need for the ECB to change its course. Instead, continuing the current strategy of driving on manual, with increased alertness, looks like the best plan for this week’s meeting.”
Anglo American to dig deep
On the corporate front, another FTSE 100-listed mining giant will issue a production update on Thursday.
Despite a planned cut in production, its majority-owned De Beers diamond business is going great guns and sold US$540mln worth of rough diamonds in its tenth and final sales cycles of 2018 last month.
Anglo American has also had the recent boon of restarting operations at its Minas-Rio iron ore operation in Brazil after two leaks in a slurry pipeline forced it to shut earlier in 2018.
Gross inflows the focus for St James’s Place
Meanwhile, blue-chip wealth manager St James’ Place PLC (LON:STJ) has seen its shares underperform the market over the past six months due to concerns about prospects for global growth and some disappointment with the level of gross inflows it reported in its third-quarter update in October.
That figure will, therefore, be much scrutinised when the firm issue its fourth-quarter update on Thursday and investors will be interested to hear if the group’s CEO still believes the industry is facing a more challenging environment.
In a note on Tuesday, analysts at Credit Suisse downgraded its rating for St James’s Place to ‘neutral’ from ‘outperform’, as the Swiss bank forecast slower growth for assets under administration (AUA), driven by near-term market volatility.
Significant events expected on Thursday:
ECB monetary policy decision
Trading updates: St James’ Place PLC (LON:STJ), Anglo American PLC (LON:AAL), Restaurant Group PLC (LON:RTN), CMC Markets Group PLC (LON:CMCX), Fevertree PLC (LON:FEVR), Daily Mail & General Trust PLC (LON:DMGT), KAZ Minerals PLC (LON:KAZ)
FTSE 100 ex-dividends: None
Economic data: US weekly jobless claims; US Markit flash composite PMI
Around the markets:
- Sterling: US$1.3074, unchanged
- Gold: US$1,283.10 an ounce, unchanged
- Brent crude: US$60.81 a barrel, down 0.3%
- Bank of England’s Haldane sees further rate rises if UK economy ‘ticks along’ – Daily Mail
- John Lewis closing its first shop in 13 years, with the shutting of Knight & Lee in Southsea putting 127 jobs at risk, in the latest sign of pressure on the high street – The Times
- Former Barclays’ bosses paid secret fees to Qatar at the height of the financial crisis to avoid a taxpayer bailout and pocket “very large bonuses”, a jury has heard – Daily Telegraph
- A UK criminal court acquitted a former Tesco executive on Wednesday over a £250mln accounting scandal at the grocer – Financial Times
- Sky has enlisted 164,000 new customers and published improved financial results in the fourth quarter, registering a solid start under its new American owner – The Times
- Debenhams received a fresh blow from the collapse of Patisserie Valerie as the cafe chain closed outlets at the department store – Daily Mail
- Luke Johnson, the multimillionaire chairman of collapsed cafe chain Patisserie Valerie, took more than £40mln from the business since the cafe group floated on the stock market less than five years ago – The Guardian
- Procter & Gamble beat Wall Street’s expectations for the fourth quarter and raised its full-year outlook fuelled by growth in organic beauty sales and higher prices – The Times
- Carlos Ghosn is ready to voluntarily step down as chief executive and chairman of Renault after hopes for his release from a Tokyo prison were dashed – Financial Times
- Capital raising by US oil exploration and production companies has declined sharply following the decline in crude prices – Financial Times
- The construction of new shops, offices and warehouses in Britain has come to a standstill for the first time in six years – The Times
- The Financial Reporting Council has warned the biggest audit firms against attempting to subvert controversial European rules that require large companies to switch auditors every 20 years – Financial Times