LONDON (Alliance News) - London stock indices resumed their run of record high closes Thursday as European Central Bank President Mario Draghi provided the start date for the ECB's quantitative easing programme and an optimistic outlook for the eurozone economy.
Draghi said the ECB will start purchasing public sector bonds in the secondary market this coming Monday, March 9, under its USD1.1 trillion quantitative easing scheme announced in January. He reiterated that monthly purchases under the QE plan will be EUR60 billion and they will be carried out until the end of September 2016 "and will, in any case, be conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term."
Draghi also said inflation in the eurozone is likely to fall to zero in 2015, lower than the 0.7% projected previously. It is expected to pick up to 1.5% in 2016 and to 1.8% in 2017. Economic growth forecasts for this year were raised to 1.5% from the 1.0% seen in December. The growth projection for next year was boosted to 1.9% from 1.5%.
"All things considered, I will be very surprised if this program does not run past September next year, which Draghi did leave the door open to," said Craig Erlam, senior market analyst at Oanda.
"A few things we've learned from the eurozone over the last five years is growth is always lower than forecast, reforms take much longer than hoped, and governments do not stick to their fiscal targets. This is not a mix that gives me any optimism that the ECB's ambitious forecasts are any more reliable now than they've been in the past," Erlam added.
As much of the information Draghi conveyed was already known to markets, stock indices in London and Europe drifted higher. The euro reacted much more dramatically. It rose to a two-day high against the dollar as Draghi began his prepared comments, before falling to a fresh 11-year low at USD1.1005 as he answered questions from journalists.
The FTSE 100 closed up 0.6% at 6,961.14, a new record high close for the blue-chip index. The FTSE 250 closed up 1.0% at 17,310.31, also a new all-time high close. The AIM All-Share closed up 0.3% at 714.12.
In Europe, the French CAC 40 closed up 0.9%. The German DAX 30 ended up 1.0% at 11,504.01, a new record high close for Frankfurt.
At the European close Wall Street also was making broad gains. The DJIA was up 0.3%, the S&P 500 up 0.2%, and the Nasdaq Composite up 0.3%.
On the London Stock Exchange, Aviva, up 7.2%, and Friends Life Group, up 7.1%, were the two biggest gainers in the FTSE 100. Aviva said its turnaround is ongoing as it reported a fall in net profit for 2014 due to the 2013 sale of its US life and related internal asset management businesses, but operating profit excluding this rose as increases in its life business, general insurance and health helped to offset a fall in fund management operating profit.
In what could be its last annual earnings statement in its current form with the proposed GBP5.6 billion acquisition of life insurance rival Friends Life Group expected to complete in the second quarter of 2015, Aviva said its net profit fell to GBP1.74 billion in 2014, compared with GBP2.15 billion in 2013. Friends Life, meanwhile, swung to a net loss of GBP138 million in 2014, compared with a net profit of GBP235 million in 2013.
Schroders, up 4.7%, was another strong blue-chip performer. The asset manager raised its dividend as it reported growth in pretax profit, net inflows from clients, and assets under management in 2014. The company said it made a GBP517.1 million pretax profit in 2014, compared with GBP447.5 million in the prior year, as net revenue rose by GBP123.6 million to GBP1.53 billion and operating expenses increased by GBP55.3 million to GBP1.03 billion.
Rio Tinto was the biggest faller in the blue-chip index, falling 2.8% after going ex-dividend, meaning new buyers no longer qualify for the latest dividend payouts. Additionally, Chinese Premier Li Keqiang lowered the economic growth target for China this year to "approximately 7%". The country's economy, a major consumer of commodities, grew last year by 7.4% - the weakest growth in 24 years - missing the 7.5% target announced at last year's congress.
International Consolidated Airlines Group, down 1.1%, was also one of the worst performers in the FTSE 100. Ireland's Transport minister Paschal Donoghue said that the government's engagement with IAG has been positive and the airline's bid to buy Aer Lingus appears to be "friendly", but it wants the airline group to expand on what it will do to expand employment and protect the Irish flag carrier's identity and routes.
Aer Lingus shares were supported by the news and closed up 2.2%.
Betfair Group closed up 18%, making it the best performer in the FTSE 250. The online betting firm revised up its full-year earnings expectations following a strong third quarter, its fourth consecutive quarter of double-digit growth as it continues to attract new customers. It said it expects a strong finish to the year with record levels of political betting in the run up to the UK general election in May.
Spirax-Sarco Engineering was the second best performer in the mid-cap index, finishing up 11%. The company added its name to the list of UK engineering businesses which saw results held back by the strength of sterling in 2014, with the company reporting a small fall in pretax profit, though the company sweetened the pill with a GBP91 million return of capital. Despite the fall in pretax profit, the company said it will increase its final dividend payment to 45 pence per share, from 41 pence last year, meaning its total dividend for the year will be 64.5 pence, up 9% on the 59 pence per share paid a year earlier.
Cobham, down 3.4%, was one of the biggest midcap fallers. The aerospace and defence manufacturer reported a big fall in pretax profit for 2014 despite higher revenue, as the company's results were held back by restructuring and acquisition costs. Cobham said its pretax profit for the year was GBP24 million, sharply down from the GBP127 million it posted a year earlier due to costs related to the acquisition of US communications equipment maker Aeroflex and restructuring measures.
In the economic calendar Friday, the focus will be on US nonfarm payrolls, unemployment rate and earnings data at 1330 GMT. Before that is German industrial production at 0700 GMT, UK consumer inflation expectations at 0930 GMT and eurozone fourth quarter GDP at 1000 GMT.
In a much quieter day for corporate reporting than of late, there are full-year results from paving stone maker Marshalls, cooker maker AGA Rangemaster, and investment trust Athelney Trust.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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5 Aug 2014 15:01
