LONDON MARKET MIDDAY: Stocks On Hold As Draghi Takes Centre Stage

LONDON (Alliance News) - London stock indices drifted lower midday Thursday as traders positioned themselves for a highly anticipated monetary policy decision by the European Central Bank.

The stage is set for ECB President Mario Draghi, with the market expecting him to administer another high dose of stimulus to the euro area economy to battle dwindling inflation and weak growth.

In its policy session in Frankfurt, the 25-member Governing Council is widely expected to lower the already negative deposit rate by 10 basis points to -0.40%, while some analysts hope it will also increase its monthly asset purchases by EUR10 billion to EUR70 billion.

"A combination of lower or more negative deposit rates and more quantitative easing is likely to be announced at today's ECB Council meeting," said David Kohl, chief currency strategist and head economist for Germany at Julius Baer.

"The tricky question will be whether Mario Draghi will be able to announce credible measures that help banks to digest the repercussions of negative interest rates on their profits. The chances for another unconventional policy tool to be announced today are high," Kohl added.

The change to interest rates will be announced in a statement by the ECB at 1245 GMT, while Draghi will hold a press conference at 1330 GMT to unveil any changes to the central bank's asset purchase programme and to take questions from the press.

However, the scar tissue from the disappointment with the ECB's actions in December is still fresh, stated currency analysts at Brown Brothers Harriman.

Investors are likely to tread more cautiously this time round after the ECB failed to deliver on market expectations in December when he revealed a 10 basis points deposit rate cut to its current -0.30% and said the asset purchase programme was extended until March 2017.

IG market analyst Joshua Mahony said the lack of significant direction seen in markets this week shows investors are unwilling to push the boat out following December's disappointment.

"This week has been personified by an unwillingness of European indices to take any real directional volatility, yet this should be resolved by the time Draghi leaves the stand this afternoon," Mahony said.

Ahead of the decision, the FTSE 100 traded down 0.3%, or 18.77 points, to 6,127.55.

The FTSE 250 index was down 0.1% to 16,583.15 and the AIM All-Share was up 0.1% to 700.19. In the European equity markets, the CAC 40 in Paris was up 0.2% and the DAX 30 in Frankfurt was up 0.3%.

In stock futures, markets ahead of the open in New York, the Dow Jones Industrial Average was called 0.2% higher, as was the Nasdaq 100. The S&P 500 was pointed up 0.3%

While all eyes were pinned on Frankfurt and the ECB, in London Aviva was the biggest gainer in the FTSE 100, up 4.0%. The insurer said it has entered 2016 from a position of strength after reporting higher annual operating profit for 2015 and lifting its dividend.

Operating profit increased 20% to GBP2.67 billion in 2015, the insurer said, versus GBP2.21 billion in 2014, beating company-supplied analyst expectations of GBP2.49 billion.

Aviva increased its total dividend per share for the year by 15% to 20.8 pence from 18.1p, slightly below analyst expectations of a 21.2p payment, and said it expects dividend increases to "moderate" in future.

The insurer will consider "additional" distributions to shareholders, depending on economic conditions, markets, and having excess capital and liquidity. "We are not there yet," Aviva said.

The decliners in the blue-chip index were dominated by stocks going ex-dvidend, meaning new buyers no longer qualify for dividend payouts. Motor and home insurer Direct Line Group was down 6.4%, miner BHP Billiton down 2.5% and Barclays down 2.9%.

Ashtead Group was also one of the worst performers in the index, down 5.4% to 806.50 pence, after Deutsche Bank started coverage on the equipment rental company at Sell with a price target of 660p. The bank was bearish on the stock due to its cyclical nature, which is currently on the downward curve, and US macroeconomic fears, which are likely to hit the domestic non-residential construction market.

In the FTSE 250, oil and gas services company Amec Foster Wheeler slashed its dividend after turning to a substantial loss in 2015, and reiterated its dividend this year will fall even further as the downturn in the oil, gas and mining markets continues.

Amec Foster Wheeler reported a GBP235.0 million pretax loss in 2015, swinging from a GBP155.0 million profit, despite revenue in the year rising 37% to GBP5.45 billion from only GBP3.99 billion last year, boosted by the merger between Amec and Foster Wheeler in late 2013.

Despite this Amec Foster Wheeler said "our exposure to a number of end markets...means we expect to see only a slight fall in like-for-like revenue, and a reduction in trading margins significantly less than the decline in 2015".

Societe Generale kept its Buy rating on the stock, saying: "Importantly, the company has also earmarked various non-core assets for disposal over the next 15 months with the target of reducing net debt by half over the coming 15 to 18 months."

Amec Foster Wheeler was the best performer in the mid-cap index, up 5.9%.

Wm Morrison Supermarkets trimmed its dividend payout and warned its turnaround will take time, but said that its sales performance improved towards the end of its financial year and that it was confident on its outlook.

The grocer experienced a difficult 2015, with sales coming under pressure from the challenge of German discounters Aldi and Lidl in the UK market, which drove significant price deflation and caused the big four supermarkets, of which Morrisons is the smallest, to invest heavily in price cuts to keep customers.

For all of 2015, total revenue slipped to GBP16.1 billion from GBP16.8 billion, while like-for-like sales for the year, excluding fuel and VAT, dropped 2.0%.

Morrisons declared a final dividend of 3.50 pence per share, taking its total dividend to 5.00p, down from the 13.65p it paid out a year earlier. The company's shares traded down 3.2%.

Aside from the ECB, still ahead in the economic calendar is US initial and continuing jobless claims data are due at 1330 GMT, while EIA natural gas storage data are at 1530 GMT. The monthly US budget statement is at 1900 GMT.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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