LONDON (Alliance News) - Major UK equity markets ended fractionally higher Friday, with the FTSE 100 and FTSE 250 posting modest gains to ensure that they closed higher every day this week, as investors paused for breath at the end of an eventful week.
"In a week that could have justifiably seen falling prices or, at the very least, a severe suppression of risk appetite, the global indices instead find themselves looking at their best week for a month," said Connor Campbell, financial analyst at Spreadex.
"Whether or not that trend can continue next week when some semblance of normality returns is unknown; for now, however, one imagines the markets will be rather content with the recent highs struck in the course of the past five days," he added.
The blue-chip index closed up 0.1% at 6,334.63 Friday, meaning that it ended higher for the fifth day in a row and that it added 3.5% for the week. The FTSE 250 closed up 0.3% 17,189.11 Friday and up 2.5% for the week, while the AIM All-Share index closed flat at 730.63 and down 0.2% for the week.
In Europe, the CAC 40 in Paris closed down 0.1%, while the DAX 30 in Frankfurt closed up 0.3%.
On Wall Street, at the UK equity market close, the DJIA, NASDAQ Composite and S&P 500 are all up between 0.6% and 0.7%.
Speaking at the European Banking Congress in Frankfurt, European Central Bank President Mario Draghi said that the central bank is willing to use all measures within its mandate to reach its inflation goal.
"If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible," Draghi said.
Although the bank's monetary policy measures have clearly worked to arrest the deflationary pressures in the euro area a year ago, Draghi said, the growth momentum still remains weak and inflation runs well below the target of below but close to 2%. The ECB president reiterated that the Governing Council will thoroughly assess the factors that are slowing the return of inflation towards 2% at its December 3 meeting.
The ECB will announce its policy decision at the conclusion of the meeting and it is widely expected to raise the size of its monthly asset purchases to EUR80 billion from EUR60 billion and also extend the EUR1.1 trillion programme beyond its September 2016 deadline. A reduction of the already-negative deposit rate is also possible.
"ECB President Mario Draghi once again delivered a very dovish message during his speech at Euro Finance Week this morning," said Craig Erlam, senior market analyst at Oanda. "His 'we will do what we must' comment was almost reminiscent of his 'whatever it takes' pledge back in 2012, although of course the latter was far more powerful given the circumstances and no prior warning," he added.
Brown Brothers Harriman said Draghi's comments signalled that the ECB will take aggressive action when it meets next month.
"His comments today are important," analysts at the private bank said. "They suggest that Draghi is pushing the ECB toward broad-based action" on both the central bank's bond-buying programme and interest rates.
"There are four moving parts: pace, duration, composition, and rates. What participants are contemplating now is not tweaking one or two of these, but all of them: Stepping up the pace of the purchases from the current EUR60 billion, to be extended beyond September 2016, including more agencies and possibly sub-sovereign instruments, and a cut in the deposit rate," BBH added.
In the forex market, the euro sank against other major currencies in the wake of Draghi's dovish speech.
The euro was already under pressure before Draghi's speech after data published by Destatis showed that Germany's producer prices declined at the fastest pace since early 2010. Producer prices decreased 2.3% in October from last year, the biggest fall since February 2010, when prices declined 3%. According to FXStreet.com, economists had expected a more modest decline of 2.0% after easing 2.1% in September.
Sterling, meanwhile, fell against the other major currencies after figures from the Office for National Statistics revealed that UK public borrowing increased unexpectedly in October. The data showed that public sector net borrowing, excluding public sector banks, climbed to GBP8.2 billion in October from GBP7.1 billion in the same month last year. It was expected to narrow to GBP6.0 billion.
At the UK equity market close, the euro traded at USD1.0654, having stood at USD1.0751 at the same time on Thursday. The pound traded at USD1.5200 at the UK stock market closing bell, having traded at USD1.5326 at the same time Thursday.
In the commodities market, Brent oil was quoted at USD44.55 a barrel at the UK equity market close Friday, having traded at USD44.25 a barrel at the same time on Thursday. Gold stood at USD1,077.80 an ounce, moderately below the USD1,083.64 an ounce seen at the UK stock market closing bell on Thursday.
At the individual UK equity level, Imperial Tobacco Group ended the day as one of the biggest risers in the FTSE 100, closing up 2.0%. The Financial Times reported that British American Tobacco is understood to have put together a syndicate of investment banks to support a potential takeover of its fellow London-listed rival.
The FT Alphaville blog, citing people claiming to have direct knowledge of the process, said no approach had been made and there is no certainty one will, but BAT is understood to have corralled a syndicate of banks willing to back a possible offer. BAT shares ended the day up 0.1%.
FTSE 100-listed Diageo shares closed up 1.3% after JP Morgan upgraded the drinks maker to Overweight from Neutral. The US bank said that after a challenging period, Diageo should be able to achieve mid-single digit top-line growth which, along with margin expansion, should lead to high single-digit organic earnings before interest and taxes growth by financial year 2017.
At the other end of the spectrum outsourcing company G4S, closing down 3.1% at 218.86 pence, the biggest loser in the blue-chip index. The company's shares were hit after Credit Suisse downgraded its rating on stock to Neutral from Outperform and cut its target price to 250 pence from 320p. JPMorgan Cazenove also cut its target price on G4S to 298p from 309p, though kept an Overweight recommendation in place.
In the FTSE 250, Melrose Industries closed up 2.1% after it said sales for its recently-sold Elster Group business rose in the first ten months of 2015, while sales for its Brush business continued to slump.
The company said sales for Elster, the energy-metering business it has sold to US conglomerate Honeywell Inc for GBP3.3 billion in cash, saw sales rise 14% in constant currencies in the ten months to the end of October. Melrose said the sale of the business to Honeywell is set to close in the first quarter of 2016.
Brush, its electricity generation unit and its only remaining business following the Elster sale, saw sales fall 26% in constant currencies in the first ten months, due to tough market conditions. This has improved somewhat in the four months to the end of October, when revenue fell by only 17%. Trading at Brush was in line with Melrose's expectations, albeit at the lower end of its forecasts.
In the AIM All-Share index, Renewable Energy Holding said it will enter talks with its main creditor, Utilico, to determine if it can continue trading, after an application to construct a wind farm in Wales was turned down by the UK Government.
Renewable Energy is due to repay debt to Utilico, its largest shareholder by virtue of its 28.71% stake in the company, by December 31. Its shares have been suspended from trading on the London Stock Exchange until the outcome of talks with Utilico becomes clear.
Ahead of the suspension, shares in the company were down 20% at 0.70 pence.
Renewable Energy has two loan facilities with Utilico. The first of those, a GBP2.5 million facility, has been fully utilised by Renewable Energy, with GBP4.0 million of the the second, GBP4.25 million facility already used. Renewable Energy had net liabilities of GBP607,000 at the end of 2014.
Over the weekend, investors will be keeping an eye on a speech by Federal Reserve Bank of San Francisco President John Williams on Saturday and Deutsche Bundesbank President Jens Weidmann on Sunday.
In the data calendar Monday, there is a raft of preliminary manufacturing and services data for November due to be released from Europe. France's Markit manufacturing and services Purchasing Managers' Index readings are due at 0800 GMT, ahead of the German figures at 0830 GMT and the eurozone's at 0900 GMT.
In the afternoon, the Federal Reserve Bank of Chicago's national activity index for October is scheduled to be published at 1330 GMT, shortly ahead of the US Markit manufacturing PMI reading at 1445 GMT.
Also of note, Japan's Nikkei 225 index is closed for Labor Thanksgiving Day.
In the corporate calendar, FTSE 250-listed MITIE Group is joined by AIM-listed TrakM8 and Sirius Real Estate in releasing half-year results Monday.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
Copyright 2015 Alliance News Limited. All Rights Reserved.
27 Apr 2016 15:09