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FTSE 100 closes lower after European Central Bank strikes downbeat note

"Brutal cuts from the ECB as GDP growth for 2019 is cut from 1.7% to 1.1%. With this in mind, it seems like any possible interest rate raises are all but completely ruled out until likely 2021," declared Jordan Hiscott, the chief trader at ayondo markets

Mario Draghi
The ECB governor made some drastic changes to forward guidance (is there such a thing as backward guidance?)
  • FTSE 100 index closes in red

  • ECB surprises the market with interest rate pledge

  • European Central Bank wheels out the TLTROs

  • Wall Street shares down

 

FTSE 100 closed Thursday in negative territory as Wall Street shares also tracked lower, as the European Central Bank struck a downbeat note.

The UK benchmark of leading shares closed down around 38  points at 7,157, while mid-cap cousin FTSE 250 lost around 175 points at 19,183.

On Wall Street, the Dow Jones Industrial Average is down 218 points at the time of writing at 25,454, while the S&P 500 index shed 19 at 2,751.

In Europe, the German DAX closed down around 69 at 11,517, while the French CAC 40 shed nearly 21 at 5,267.

David Madden, analyst at CMC Markets, said earlier: "It has been a volatile session in Europe today. The European Central Bank (ECB) announced a new series of targeted loans and the scheme will come into effect in September, and the bank said it now expects rates to remain on hold throughout 2019."

Madden also noted that growth guidance for this year and the next form the bank has been trimmed.

"The underlying message from the ECB was negative, and that played out in the stock market. The FTSE 100 has been hit by a sell-off in mining and financial stocks."

In Brexit, the heat is on for UK negotiators in Brussels to agree a deal as the March 29 deadline looms large.

 

3.30pm: ECB switches to glass half empty viewpoint

The Footsie continued to slide as traders reacted to the surprise moves announced by the ECB today and the miserable start to trading on Wall Street.

The FTSE 100 was down 51 points (0.71%), close to its low point for the day.

Nick Kilbey, a sales trader at Foenix Partners, called it a “double dovish surprise” while ING called it a “dovish gamble”.

Florian Hense at German bank Berenberg said the European Central Bank (ECB) had got “real” and leapfrogged ahead of the curve.

“Effectively, the ECB has done what it could for this year, a little earlier than expected. As a result, watching the ECB could be boring for the remainder of 2019,” Hense admitted, tacitly admitting that watching it hitherto this year might have been in some way exciting.

“Previously, the ECB may have seen the glass half-full. With today’s moves, it switched viewing the glass as half-empty. While there are some brighter spots (stabilising PMIs, rebounding consumer confidence and continued solid disposable income gains), the economic situation may easily get worse first,” Hense said.

“Worryingly, long-term inflation expectations have fallen significantly. Like the US Fed which had turned dovish earlier in January, the ECB wants to give the economy more breathing space. As underlying price pressures are still miles away from the 2% target, the ECB afford to act as the buffer and respond to weaker growth by extending its period of pronounced monetary accommodation,” the economist said.

Fiona Cincotta at City Index might have inadvertently given away what seems like a can’t fail trading strategy: short the euro before ECB meetings.

“Over the past 15 months, the euro has fallen after every ECB meeting. Today was no different. The ECB substantially revising down growth projections, whilst unveiling measures to revive the bloc’s ailing economy, and pledging to keep rates on hold until 2020, hit the euro hard,” she noted.

2.35pm: US markets open on the back foot

US benchmarks took a bath in early deals, leaving the indices on course for their worst week of the year.

The Dow Jones was down 226 points (0.8%) at 25,447 while the S&P 500 was off 25 points (0.90%) at 2,746.

In the UK, the FTSE 100 was 49 points (0.68%) lower at 7,147 – its low point for the day.

Mining giants Rio Tinto PLC (LON:RIO) and BHP Group PLC (LON:BHP) were weighing on the index. Rio was down 6.8% at 4,172.5p, trading for the first time today without the right to receive the 2018 dividend, while BHP was 2.65% lower at 1,731.8p, despite HSBC nudging up its target price to 1,765p from 1,760p; the same bank also lifted its price target for Rio to 4.675p from 4.650p.

12.45pm: All you wanted to know (or possibly not) about targeted long-term refinancing operations

The European Central Bank’s (ECB) policy committee made like a dove rather than a hawk at its meeting today.

“The bank has stated its intention to keep rates on hold at record lows until at least the end of the year, as well as making a fresh offer of funding for the bloc’s banks – known as Targeted Long Term Refinancing Operations or TLTROs,” reported David Cheetham at online trading platform, xtb.

“This is now the third time the central bank have chosen to implement this measure, which in effect is an injection of liquidity into the banking sector, in an effort to provide further stimulus and the news has seen some immediate reaction to the upside for the region’s banking stocks,” Cheetham observed.

The euro fell back on foreign exchange markets following the announcement.

Carsten Brzeski, the chief economist covering Germany at ING Economics, wondered whether the ECB is showing signs of panic.

“The measures, as such, are not a major surprise but the moment of the announcement is. In our view, it is clearly an attempt to stay ahead of the curve and to avoid unwarranted tightening of the ECB’s monetary stance. It is not an attempt to provide more easing. At the same time, however, it is also a bit of a gamble as any next step from here to tackle a severe downswing of the economy would now require unprecedented measures,” Brzeski suggested.

Brzeski may have thought the measures were not a major surprise but Naeem Aslam at thinkmarkets described them as “fireworks”, with the decision tantamount to the central bank acknowledging the slow growth in the eurozone.

“This announcement made traders go wild and this pushed the euro-dollar price lower. All eyes will be on Draghi and markets are going to be even more brutal if he delivers any more surprise in his statement. This is because the overnight volatility for euro-dollar pair shows that when traders are not expecting any surprise and the policymakers play against the odds, the reaction is more ruthless,” Aslam said.

The FTSE 100 perked up a tad in the first hour of the lunchtime trading session, recovering to 7,176, down 20 points (0.28%).

11.30am: US markets expected to open lower

 The Footsie hugged the 7,160 level for most of the morning and with US markets expected to open lower, looks unlikely to rally.

The FTSE 100 was down 36 points (0.50%) at 7,160.

“A lacklustre Asian session is paving the way for losses at the opening bell on Wall Street,” reported James Hughes of Axi Trader.

“Pessimism over the size and shape of any US-China trade deal appears to be growing, despite the repeated rhetoric from ‘sources’ that an agreement is close. Critically, with Trump focusing on the 2020 election, he wants this deal done but if it doesn’t carry enough weight with US companies then the hoped-for shot in the arm for stocks simply won’t materialise. That will in turn force attention on to using monetary policy for stimulus, but tomorrow’s non-farm payrolls could offer some hope here,” Hughes suggested.

“Ahead of the open we’re calling the DOW down 98 at 25,575 and the S&P down 8 at 2,763,” Hughes revealed.

Meanwhile, in Europe, the attention is on the European Central Bank’s policy meeting today.

“In response to the region’s economic issues, the ECB is expected to announce, or at least signal, that is prepping a fresh set of targeted longer-term refinancing operations in order to encourage bank lending. Ahead of the latest appearance from Mario Draghi the Eurozone indices were in a bad way, with both the DAX and CAC down 0.5%,” noted Connor Campbell at Spreadex.

Sterling’s decline on foreign exchange markets lent a bit of support to Footsie companies, many of which make a large chunk of their sales overseas; the more UK-focused FTSE 250, however, was harder hit, with the index down 166 points (0.86%) at 19,194.

Defying the trend was mid-cap Premier Oil PLC (LON:PMO), which was up 4.9% at 77.5p after its 2018 results received a warm reception.

READ Premier Oil puts North Sea, Mexico and Falklands growth projects on agenda after record year of production

10.30am: Halifax house price index springs a surprise

The Halifax surprised the market by reporting house prices bounced back strongly in February.

The lender’s house price index rose 5.9% in February, well ahead of expectations, following on from January’s 3.0% fall.

“The consensus in a Reuters poll had been for prices to edge up 0.1% month-on-month, with the range of forecasts lying between a drop of 0.5% and a rise of 1.0%,” reported Howard Archer, the chief economic adviser to the EY ITEM Club.

“There have recently been significant monthly variations in the house price data of the Halifax and the Nationwide, with the Nationwide generally reporting much smaller monthly movements,” Archer noted.

Lucy Pendleton, the founder director of independent estate agents James Pendleton, suggested that low supply in key areas is probably squeezing those buyers who have a need, rather than a desire, to move.

“The difference between the Halifax index and the Land Registry figures is crucially important here too. These numbers are based only on mortgages agreed so these buyers know they are going to be able to pull out of the deal if Brexit goes bad and the economic outlook rapidly deteriorates,” she added.

The FTSE 100 was down 36 points at 7,160.

9.30am: A mixed bag of updates from the blue-chips

 A mixed bag of results statements from blue-chips has left the Footsie modestly lower this morning.

The FTSE 100 was down 23 points (0.32%) at 7,173, not helped by adverse reactions to trading statements from NMC Health PLC (LON:NMC) and insurance giant Aviva PLC (LON:AV.).

The former was down 5.5% and the latter 3.5%.

“Aviva feels like the sleeping giant of UK insurance. When Mark Wilson joined Aviva there was talk of a major expansion into emerging markets, or perhaps a transformational deal, instead we saw a few large bolt-ons in the Friends Life and RBC deals and little else,” moaned Nicholas Hyett, an equity analyst at Hargreaves Lansdown.

Hyett said new boss Maurice Tulloch is “a potentially odd choice if the board are looking to shake things up”.

“He’s been with Aviva for 27 years and his pledge to cut debt and focus on “insurance fundamentals” is hardly going to set the world on fire. It’s early days, but at first glance, it looks like the plan is to ‘re-energise' Aviva with more of the same,” Hyett declared.

On the plus side for the Footsie, the market gave the thumbs-up to results from exhibitions organiser and business-to-business publisher Informa PLC (LON:INF) and holding company Melrose Industries PLC (LON:MRS).

Informa was up 2.4% and Melrose 3.2%.

8.45am: Footsie falls as ex-divs weigh

The FTSE 100 got off to a sluggish start, shedding 32 points to 7,164.13, as it took its cue from Asia and Wall Street overnight.

The movement down also betrayed some nervousness ahead of the European Central Bank’s rate decision later, analysts said.

On the UK blue-chip index Neil Wilson, of Markets.com, made this observation: “The FTSE 100 has pulled back from its highs after failing to scale the 7,200 region.

“We would look for softening in the pound against the dollar to drive any further gains and tip it over that level this week.”

Rio Tinto (LON:RIO), down 8.5%, led the Footsie fallers as it traded ex-dividend. That said, there was a wider sell-off in the mining sector prompted by fears over the Chinese economy, a big driver of the world’s major diggers.

There was some mild profit-taking in the wake of a well-flagged strong set of prelims from Geordie bakery chain Greggs (LON:GRG).

We couldn’t resist this line from Laith Khalaf, from investment group Hargreaves Lansdown, who said: “Vegan sausage rolls and a healthy turnover pay dividends.”   

As well as posting £1bn in turnover for the first time, Greggs is also mulling a special divi following the success of its new savoury snack.

But as Khalaf pointed out, trading on a multiple of 23-times earnings, it is going to take a lot to keep the stock airborne. Shares fell 1%, but have trebled in value in the last five years.

Proactive news headlines:

Asiamet Resources Limited (LON:ARS) has received two key approvals for its wholly-owned BKM copper project in Central Kalimantan, Indonesia.

Victoria Oil & Gas PLC (LON:VOG) has today confirmed the result of its equity raise, with the company successfully selling 59.35mln new shares priced at 13p each. The placing was oversubscribed, VOG highlighted, with new and existing investors taking up shares.

Strategic Minerals PLC (LON:SML) is to restart copper production at the Leigh Creek copper mine’s Mountain of Light (MoL) processing facility in April of this year.

ANGLE PLC (LON:AGL, OTCQX:ANPCY) said it had passed a “key milestone” following the completion of recruitment to a phase III clinical study to assess the potential of its liquid biopsy in metastatic breast cancer. A total of 400 people will be screened using the Parsortix system, which harvests tumour cells. The work is being carried out at world-leading cancer centres in Texas, California and Illinois.

Sound Energy PLC (LON:SOU) has told investors that it has continued positive discussions with the Moroccan authorities over a gas sales agreement that would unlock the Tendrara project for production.

Touchstone Exploration Inc (LON:TXP) has released its annual reserves assessment, showing a 5% increase in proved reserves. Proven (1P) reserves amounted to 11.2mln barrels while proven and probable (2P) increased by 4% to 19.2mln barrels.

Metal Tiger PLC (LON:MTR) said its investee company Kalahari Metals Limited (KML) has reported that results from recently completed soil sampling and re-interpretation of historical data over the Kitlanya joint venture copper project has provided compelling targets for drill testing.

Oil and gas company i3 Energy PLC (LON:I3E) has responded to speculation about a possible fund-raising by saying it is considering many viable funding options.

Block Energy Plc (LON:BLOE) revealed a significant increase in production rate at Norio wells 44 and 27. The company said that the improvement is “moving the combined current production rate at the Norio and Satskhenisi fields towards 60 barrels of oil per day.”

Silence Therapeutics PLC (LON:SLN), a leader in the discovery, development and delivery of novel RNA therapeutics for the treatment of serious diseases, announced that its chief executive officer, Dr David Horn Solomon is scheduled to present an overview and company update as well as host investor meetings at the 39th Annual Cowen Health Care Conference on Monday, March 11, 2019, at The Boston Marriott Copley Place, Boston, Mass.

Widecells Group PLC (LON:WDC) said on Wednesday that it had issued a further drawdown notice for up to around £1.36mln under a financing agreement with the European High Growth Opportunities Securitisation Fund. The AIM-listed stem cells group said the funds will be paid in three tranches,  in return for which will it issue bonds which can be converted into shares.

6.45am: FTSE 100 to start in reverse gear

The FTSE 100 is seen slightly lower ahead of Thursday’s trading as investors gear up for a somewhat busy start in terms of blue-chip corporate news.

Spreadbetting and CFD firm IG Markets marks down the London index by around 15 points, making the spread 7,166 to 7,169 with a little over an hour to go until the start of Thursday’s open.

According to market arithmetic, some 21 points are due to come of the index due to constituents such as BHP Billiton plc (LON:BLT), Rio Tinto plc (LON:RIO) and Standard Chartered PLC (LON:STAN) going ‘ex-dividend’ .

Results from insurers, Aviva and Admiral, are the likely highlights in what’s a relatively full diary.

Attentions are broadly elsewhere in terms of economics, with European Central Bank watched for anticipated expansion of lending to support activity in the block – meanwhile, interest rates are expected to remain unchanged.

Over the pond, the narrative is likely to focus on America’s trading position after statistics showed a US$9bn increase in the US trade deficit, which expanded to US$59.8bn. It certainly does not represent a merit badge for President Trump and his aggressive and very public stance on international trade.

“President Trump wants to reduce the trade deficit, and it is going in the opposite direction,” said David Madden, an analyst at CMC Markets. “Imports increased, so US demand is firm, but exports dropped, and that indicates that global demand is cooling.

“The beige book stated the majority of the US endured ‘slow to moderate’ growth in late January and February. The government shutdown impacted the economy. There was ‘mixed’ consumer spending across several regions.

Madden added: “John C Williams, the head of the New York Fed said that slower growth ‘isn’t necessarily cause for alarm’, and it is likely to become the ‘new normal’.”

In New York, the Dow Jones fell 133 points of 0.52% to close Wednesday at 25,673. The S&P 500, meanwhile, reduced by 0.65% to end the session at 2,771 and the Nasdaq gave up 0.93% to finish the day at 7,505.

Asian stocks this morning mostly fell also. Japan’s Nikkei was 140 points or 0.65% lower at 21,456 and Hong Kong’s Hang Seng lost 0.56% to 28,873.

The Shanghai Composite was, however, trading positive – up 0.89% at 3,129.

Significant announcements expected on Thursday:

European Central Bank council meeting

Finals: Aviva PLC (LON:AV.), Admiral Group PLC (LON:ADM), Greggs plc (LON:GRG), Melrose Industries PLC (LON:MRO), Premier Oil PLC (LON:PMO), Cobham PLC (LON:COB), Informa PLC (LON:INF), Ophir Energy Plc (LON:OPHR), Spirax-Sarco PLC (LON:SPX), Inmarsat Plc (LON:ISAT), Spirent Communications PLC (LON:SPT), NMC Health plc (LON:NMC), AIREA PLC (LON:AIEA), IndigoVision Group plc (LON:IND), Alfa Financial Software Holdings PLC (LON:ALFA), AIREA PLC (LON:AIEA), Cairn Homes PLC (LON:CRN)

Interims: Inland Homes Plc (LON:INL)

Ex-dividends to chop 21.7 points off FTSE 100 index: BHP Group PLC (LON:BHP), Persimmon PLC (LON:PSN), Rio Tinto PLC (LON:RIO), RSA Insurance PLC (LON:RSA), Standard Chartered PLC (LON:STAN), Evraz plc (LON:EVR)

Economic data: Halifax UK house price index; US weekly jobless claims; US Challenger job cuts

Around the markets:

  • The pound: US$1,3173, up 0.02%
  • Gold price: US$1,284 per ounce, unchanged
  • Brent Crude Oil: US$66.20 per barrel, up 0.54%
  • Bitcoin: US$3,858, up 0.46%

City headlines:

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