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LONDON (Alliance News) - Stocks in London ended higher Friday, as investors thought twice about the easing measures announced by the ECB, with the FTSE 100 recovering almost all of the losses from Thursday but still ending the week down.
"As the dust has settled, markets are seeing the new package of economic stimulus measures from the European Central Bank in a more positive light," said CMC Markets analyst Jasper Lawler.
The FTSE 100 index closed up 1.7%, or 103.09 points, at 6,139.79. Financial stocks such as banks and insurers led the gains in the blue-chip index, benefiting the most from the easing measures announced by ECB President Mario Draghi. However, the supportive measures from the ECB were not enough for the FTSE 100 to finish the week higher. For the week as a whole, the index dropped 1.0%.
Aviva and RSA Insurance ended up 4.4%, and St James's Place ended up 4.8%. Meanwhile, shares in Royal Bank of Scotland Group closed up 3.6%, Standard Chartered up 4.3%, and Barclays up 3.3%.
Analysts were widely expecting a decent stimulus package from the ECB, but the central bank over-delivered with a cut to all three of its interest rates and an expansion to its asset purchase programme.
The main refinancing rate, which the bank uses to boost liquidity, was cut by five basis points to a record low 0.0%. The already-negative deposit rate was cut by 10 basis points to -0.40%, while the ECB made a surprise five basis point cut to its marginal lending facility rate to 0.25%. The new rates will take effect on March 16, the central bank said.
The ECB expanded the monthly purchases it makes under the asset purchase programme by EUR20 billion to EUR80 billion starting in April. The central bank also decided to include investment grade euro-denominated bonds issued by non-bank corporations in the euro area in the list of assets that are eligible for regular purchases.
IG analyst Alastair McCaig said shares in the financial sectors across Europe have especially benefited from the ECB decision, "rising in anticipation of both the increase in asset purchases and the direct stimulus of corporate debt now being included in the basket of debt that the current ECB quantitative easing scheme can use".
The euro dropped significantly immediately after the decision was announced, but the single currency experienced heavy gyrations as the press conference from Draghi progressed. When responding to questions from reporters, Draghi said that while rates are likely to remain at low levels for an extended period of time, he does not anticipate the need for further rate cuts.
Draghi's comment provoked a jump on the euro, which recovered all the ground it lost after the decision. The single currency was quoted at USD1.1181 at the London equities close Friday, higher than the USD1.1161 quoted at the equities close Thursday.
"The jump in the euro reflects short covering from unjustifiably bearish sentiment rather than disappointment over the level of stimulus," noted CMC's Lawler. "The rising belief that the Federal Reserve will hold off on many more rate hikes this year means downside in the euro is limited, even with the ECB enacting more aggressive easing".
In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed up 3.3% and 3.5%, respectively.
Old Mutual and Marks & Spencer Group were among a handful of decliners in the FTSE 100.
Shares in the insurer ended down 1.8% after confirming plans to split up its business. The Anglo-South African group said there is "limited rationale" for its four main divisions to be part of the same group, confirming that it intends to separate them by the end of 2018 in a move to cut debt, costs and complexity.
Bruce Hemphill, a former executive at African lender Standard Bank Group, said the review he began when he succeeded Julian Roberts as Old Mutual's chief executive in November 2015 showed that there is "very little commonality" between the businesses.
The group's four divisions include holdings in two publicly listed entities: a 66% stake in New York-listed OM Asset Management and a 54% stake in Johannesburg-listed lender Nedbank. The separation "may involve equity market activity" for Old Mutual's UK-focused wealth management arm and its emerging markets business based in South Africa.
Meanwhile, Marks & Spencer shares dropped 2.1% after the food and clothing retailer was downgraded to Underperform from Neutral by Merrill Lynch.
The FTSE 250 ended up 1.3%, or 210.09 points, at 16,595.25 and the AIM All-Share closed up 0.7%, or 4.82 points, at 702.46.
Marshalls ended up 10%, making it the biggest mid-cap riser after the block paving manufacturer said investments in product development helped its pretax profit surge in 2015. The group said that profit growth enabled the payment of a special dividend, as it outlined plans to make bolt-on acquisitions for its water maintenance and street furniture divisions.
The supplementary dividend of 2.00 pence per share came on top of a final dividend of 4.75 pence per share, which means its full-year dividend is 7.00 pence per share, up from 6.00 pence in 2014.
Safestore Holdings also ended in the green, up 4.4%, after the self-storage provider agreed a deal to acquire smaller peer Space Maker for up to GBP44.4 million. Safestore will pay GBP43.0 million initially in cash, with a further GBP1.4 million in deferred consideration to be payable in the three years following completion, dependent on certain performance targets being hit.
Annuities providers Just Retirement Group and Partnership Assurance Group were in the green after saying they remain confident of achieving at least GBP40.0 million of cost savings through their GBP1.60 billion merger. The life insurers said they expect their merger to complete in April, with the aim of creating JRP Group, as they separately reported earnings. Their shares closed up 0.9% and 6.3%, respectively.
Just Retirement said it swung to a first-half pretax profit of GBP26.1 million in the six months ended December 31, from a GBP9.2 million pretax loss in the corresponding period of 2014. Partnership swung to a full-year pretax loss of GBP16.5 million in 2015, from a GBP24.1 million pretax profit in 2014, saying it was hit by one-off costs, particularly the new Solvency II rules for insurers across the EU, and lower sales volumes.
Acacia Mining and Restaurant Group ended down on broker downgrades. The miner dropped 2.3%, after UBS cut its recommendation to Neutral from Buy, while shares in the Chiquito and Garfunkel's owner declined by 2.4% after Deutsche Bank cut it to Hold from Buy.
Computacenter lost 2.3% after the IT infrastructure services provider saw its 2015 pretax profit boosted by a one-off gain and lower restructuring costs in 2015, but warned its profit for the first half of 2016 will fall behind that seen in 2015 as its UK business faces a "more challenging year."
Stocks in New York were higher at the London close, with the DJIA up 1.2%, whilst the S&P 500 and the Nasdaq Composite up 1.4%.
Still in the US economic calendar, Baker Hughes' US oil rig count is expected at 1700 GMT.
Crude prices have remained resilient over the last week, with Brent just briefly trading below the USD40 line after Reuters reported Thursday that a meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, as OPEC member Iran is yet to say whether it would participate in such a deal.
The International Energy Agency said Friday there are signs that oil prices may have "bottomed out", but warned it is not certain whether the market will reach the light at what has been a very long and dark tunnel any time soon.
"International crude oil prices have recovered remarkably in recent weeks. From a nadir of USD28.5 a barrel in mid-January Brent crude is now trading around USD40 a barrel. This should not, however, be taken as a definitive sign that the worst is necessarily over. Even so, there are signs that prices might have bottomed out," said the IEA.
Brent crude was quoted at USD40.47 at the London market close, higher than the USD39.78 at the close Thursday. Meanwhile, gold was at USD1,260.50 versus USD1,265.21 on Thursday.
Data from the Office for National Statistics revealed that the UK visible trade deficit narrowed in January due to a decrease in imports. The overall trade deficit including goods and services fell to GBP3.5 billion from GBP3.7 billion in December. Economists expected the trade deficit to fall to GBP3.0 billion.
Another report from the ONS said construction output in the UK decreased 0.2% month-on-month in January from December, as expected by economists. On a yearly basis, construction output fell 0.8% in January, but slower than an expected 1.7% decline.
Meanwhile, results of a quarterly survey from the Bank of England showed Britons' inflation expectations for 2017 fell to the lowest level in more than 16 years in February. Inflation is forecast to be 1.8% in the coming year compared with 2% predicted in November. These were the lowest inflation expectations since November 1999. In five years' time, inflation is forecast to rise to 2.9%, unchanged since November.
The pound was standing at USD1.4391 at the close Friday, compared to USD1.4293 on Thursday.
In the economic calendar Saturday, there are retail sales and industrial production data from China at 0200 GMT. On Monday, eurozone industrial production is due at 0700 GMT.
In the UK corporate calendar Monday, Ascential, Frenkel Topping Group, Raven Russia, NMC Health, Fevertree Drinks and Goals Soccer Centres publish full-year results.
By Daniel Ruiz; danielruiz@alliancenews.com
Copyright 2016 Alliance News Limited. All Rights Reserved.
The FTSE 250 ended up 1.3%, or 210.09 points, at 16,595.25 and the AIM All-Share closed up 0.7%, or 4.82 points, at 702.46. In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed up 3.3% and 3.5%, respectively.
