LONDON MARKET CLOSE: Stocks End Down As ECB Easing Measures Disappoint

LONDON (Alliance News) - UK stocks ended lower Thursday after the European Central Bank disappointed analysts with the extent of the cut to its deposit rate and by declining to increase its monthly asset purchase spending, even though it extended its quantitative easing programme until March 2017.

The ECB cut its deposit rate by 10 basis points, deeper into negative territory, to -0.30%. The size of the reduction was at the lower end of the 10-20 basis points cut economists had forecast. Following its monetary policy meeting held in Frankfurt, the Governing Council left the main refinancing rate unchanged at a record low of 0.05% and the marginal lending facility rate at 0.30%.

During the press conference after the meeting, ECB President Mario Draghi announced that the central bank's EUR1.1 trillion asset purchase programme will be extended until March 2017, "or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term."

The ECB left the size of the monthly asset purchases unchanged at EUR60 billion, contrary to economists' expectations for a boost to as much as EUR80 billion. The ECB added euro-denominated marketable debt instruments issued by regional and local governments located in the euro area to the list of assets that national central banks can buy under the public sector purchase programme, while it also lowered the eurozone inflation forecasts for the next two years.

The FTSE 100 index ended down 2.3% at 6,275.00 points, the FTSE 250 down 0.9% at 17,391.87 and the AIM All-Share flat at 741.62.

European indices gave back their morning gains, when expectations for more easing measures were boosting investor confidence, ending firmly in the red, with the CAC 40 in Paris and German DAX 30 both down 3.6%.

"By not raising the monthly pace of asset purchases from EUR60 billion per month, the ECB fell short of the expectations Draghi had raised ahead of today's meeting. In big decisions in the past, Draghi had usually managed to go beyond the expectations he had raised. This time, he didn't," Holger Schmieding, chief economist at Berenberg Bank, said.

"That may reflect that, with the dent to growth caused by the emerging market crisis looking modest so far, the need for further stimulus was less clear-cut than in the past," Schmieding added.

The euro spiked higher following the decision, with the single currency being quoted at USD1.0845 at the London close, hitting levels it hadn't seen in almost a month.

James Hughes, chief market analyst at GKFX, said: "The big story is the disappointment in the markets as the as the euro surged through USD1.09 after expectations were that we would see more in terms of policy."

"This has been a huge failure from the ECB according to the markets, much more was expected and little delivered that was considered thinking outside of the box, so it seems that Mario Draghi has been punished this time for hitting market expectations," Hughes said.

Draghi pointed out that ECB Staff projections still indicate continued downside risks to the inflation outlook and slightly weaker inflation dynamics than previously expected.

"The persistence of low inflation rates reflects sizable economic slack weighing on domestic price pressures and headwinds from the external environment," Draghi said. "Our new measures will ensure accommodative financial conditions and further strengthen the substantial easing impact of the measures taken since June 2014."

The bank retained the inflation forecast for 2015 at 0.1%, while it lowered the outlook for 2016 to 1% from 1.1%. The projection for 2017 was cut to 1.6% from 1.7%.

The central bank now expects stronger growth than previously anticipated, and Draghi said that recovery has become broader and mainly driven by consumption.

The latest ECB Staff projections that Draghi unveiled on Thursday, revealed an upward revision to the Eurozone growth forecast for 2015 to 1.5% from 1.4% seen in September. The outlook for 2016 was retained at 1.7%, while the prediction for 2017 was raised to 1.9% from 1.8%.

After Draghi's comments, the focus turned to Federal Reserve Chair Janet Yellen, as she was testifying before the Joint Economic Committee in Senate in Washington.

That comes after Yellen pushed US stocks lower on Wednesday by signalling the Fed is on track to raise interest rates at its December 15-16 meeting. Yellen stopped short of explicitly saying the Fed will hike rates this month, but acknowledged that conditions for tightening are on the verge of being met.

"I currently judge that US economic growth is likely to be sufficient over the next year or two to result in further improvement in the labour market," Yellen said on Wednesday at the Economic Club of Washington.

At the London close, US stocks were heading south, with the Dow Jones Industrial Average down 0.3%, the S&P 500 down 0.4% and the Nasdaq Composite down 0.3%.

A day ahead of the closely watched monthly jobs report, expected Friday at 1330 GMT, the US Labor Department released a report showing that first-time claims for US unemployment benefits rose in line with estimates in the week ended November 27.

The report said initial jobless claims climbed to 269,000, an increase of 9,000 from the previous week's unrevised level of 260,000. Economists had expected claims to rise to 269,000. Jobless claims rebounded after moving lower for two straight weeks, bouncing off the one-month low set it in the previous week.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, rose by 6,000 to 2.161 million in the week ended November 20.

New orders for US manufactured goods rose by slightly more than expected in October, according to a report released by the US Commerce Department. The report said factory orders jumped by 1.5% in October following a revised 0.8% decrease in September. Economists had expected orders to climb by about 1.4%.

Markit's US services Purchasing Manager's Index came in lower than expected at 56.1 in November, following a 56.5 reading in October. Economists expected the index to come in at 56.5.

Meanwhile, the UK service sector activity expanded at the fastest pace in four months in November. The Chartered Institute of Procurement & Supply/Markit services Purchasing Manager's index rose more-than-expected to 55.9 in November from 54.9 in the previous month. Economists had expected the index to increase slightly to 55.0.

The pound was higher at USD1.5085 at the London close, having stood at USD1.4938 at the London equities close Wednesday.

Meanwhile, the eurozone services PMI final reading for November improved marginally to 54.2 from 54.1 in October, below the initial score of 54.6. The same from Germany came in at 55.6, up from 54.5 in October and in line with flash estimate, while the reading for France dropped to 51.0 from 52.7 in October, revised down from 51.3.

On the London Stock Exchange, the mining stocks ended in the red, with BHP Billiton down 1.4%, Rio Tinto down 2.2% and Antofagasta down 2.3%, as gold, silver, zinc and copper prices came under pressure. Nevertheless, the gold price found a floor throughout the session, quoted at the London close at USD1,060.00, but having touched a low of USD1,046.00, its lowest level since 2010.

At the London close, Brent oil traded at USD43.74, while West Texas Intermediate was quoted at USD40.78.

Stock movements were also provoked by broker rating changes, with Ashtead Group ending down 5.0% after Exane BNP cut the industrial equipment rental company to Neutral from Outperform, while Primark owner Associated British Foods dropped 1.0% after Goldman Sachs cut it to Sell from Buy.

Whitbread ended among a handful of gainers in the FTSE 100, up 2.1% at 4,793.00 pence after Credit Suisse lifted its price target on the owner of hotel chain Premier Inn and coffee shops Costa Coffee to 5,800.00 pence from 5,500.00p, keeping an Outperform rating.

In the FTSE 250, department store operator Debenhams finished down 6.7% after Goldman Sachs cut the stock to Sell from Neutral.

At the other side of the mid-cap index, JD Sports Fashion added 2.3% after saying it expects that its headline profit before tax and exceptional items for the current financial year to January 31, 2016 is likely to exceed current consensus market expectations of GBP125.0 million by GBP10.0 million. The company said that "relatively strong" trading has continued.

In giving its expectation, the sports retailer said it recognised the "critical importance" of trading through the remainder of December and early January, and noted "further infrastructure cost increases" during the year to support the increasing international development of the business

Go-Ahead Group ended up 2.3%. The transport operator said its 65%-owned London Midland arm has secured an extension of the franchise to run the West Midlands passenger train service in the UK until October 2017.

The direct award by the UK's Department of Transport has been agreed, the company said, and will include schemes to benefit passengers throughout the new franchise, including two extra evening services on weekdays between London and the Trent Valley, earlier services to Birmingham on Sunday mornings and free WiFi on long-distance journeys.

In a light UK corporate calendar Friday, easyJet releases its November traffic statistics, Berkeley Group publishes half-year results and London & St Lawrence Investment Co issues a trading statement.

In the economic calendar, Japan's consumer confidence index is due at 0500 GMT, Germany's factory orders data are due at 0700 GMT and UK's Halifax house prices are due at 0800 GMT. In the US, alongside nonfarm payrolls, the unemployment rate is also expected at 1330 GMT.

By Daniel Ruiz; danielruiz@alliancenews.com

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