MARKET COMMENT: FTSE 100 Ends At 10 Week High, Euro Spooked By Draghi

LONDON (Alliance News) - The major UK stock indices closed higher Thursday, with the FTSE 100 ending at a 10 week higher, as equity markets around the world were lifted by hopes that the US Federal Reserve will keep supporting the world's biggest economy for some time to come.

However, the euro had its most volatile day of the year as the European Central Bank gave its strongest hint yet that further policy easing may be on the way.

Overnight, Federal Reserve Chair Janet Yellen maintained a dovish tone in front of Congress, saying that the Fed will maintain its accommodative monetary policy stance for as long as necessary. That boosted equity markets in Asia, and the positive sentiment followed-through into Europe and the US.

The FTSE 100 reversed the losses it made earlier in the week, closing up 0.6% at 6,839.25. The FTSE 250 closed up 0.6% at 15,968.51, while the AIM All-Share underperformed, closing down 0.1% at 810.23.

Major European markets performed even better than their UK peers, with the French CAC 40 closing up 1.3%, and the German DAX 30 gaining 0.8%.

US markets are continuing higher Thursday, with the DJIA and the S&P 500 both up 0.4% when the European markets closed, and the Nasdaq Composite 0.9% higher. Weekly US jobless claims came in lower-than-expected: 319,000 jobless claims were made in the week ended May 2, less than the 325,000 expected and down from 345,000 in the previous week.

Within the FTSE 100, Barclays had its best day so far this year, closing up 7.7%, by far the biggest rise on the blue-chip index.

The bank put out its highly-anticipated strategy update, saying it plans to shrink its investment bank with a new round of job cuts, while shifting billions of pounds' worth of risk-weighted assets into a "non-core unit" or so-called bad bank.

Barclays will address the plunging profitability of its investment bank by putting about GBP115 billion of risk-weighted non-core assets, about 26% of the group's total assets, in an internal unit, in a very similar move to that made by Royal Bank of Scotland Group. Barclays management expects to run them down to about GBP50 billion by the end of 2016.

Barclays also announced that its investment banking shake-up will result in about 7,000 extra job losses within the unit by 2016, 2,000 of which will come this year. It also committed to reducing its costs to GBP16.3 billion by 2015, from GBP18.5 billion in 2013.

BT Group also had a strong day, closing up 2.9% after the telecommunications company raised its annual dividend after its revenue and pretax pre-items profit beat market expectations, driven by growth in broadband and TV customer numbers, and it promised further earnings and dividend growth over the next two years.

Sage group was the heaviest faller in the index, losing 6.0%. It swung back to a pretax profit of GBP164.5 million in its first half and raised its interim dividend, but investors reacted negatively to the news that 63-year-old Chief Executive Guy Berruyer will retire after 17 years with the company, including four years as CEO.

Centrica shares lost 2.0% after it issued its second profit warning so far in 2014, blaming extreme winter weather in the US, mild conditions in the UK, and the intense pressure that's been put on energy providers in the UK in recent months by politicians and consumer groups.

Centrica said it now expects adjusted earnings per share expected to be between 22 pence and 23 pence in 2014, down from 36.6 pence in 2013. In February, the company said it expected full-year earnings per share to be lower, but didn't give a specific range. However, the British Gas parent said earnings growth is expected to return in 2015 as long as more normal weather conditions return.

Supergroup plummeted 12.5% in the FTSE 250, after the clothing retailer missed sales targets in the last quarter, and said it now expects its pretax profit for the full year to be at the lower end of expectations, hit by heavy promotions in the UK retailer sector.

Both the Bank of England and the European Central Bank left their monetary policies unchanged on Thursday, with the BoE maintaining a base rate of 0.5%, while the ECB maintained its 0.25% benchmark.

The BoE had been widely expected to stand pat and there was therefore very little reaction to the UK central bank's announcement. The pound remained relatively stable against the dollar, continuing to trade at USD1.6950 at the time of the UK equity market close.

The euro has a much more volatile day however, rallying to a two-and-a-half year high against the dollar of USD1.3993, only to plummet more that a cent after ECB President Mario Draghi hinted that the central bank is looking at making a change to its policy at next months meeting. The eurozone's currency reached a session low of USD1.3847.

"The governing council is comfortable with acting next time, but wants to wait for the staff projections due in June," Draghi said.

There is an ongoing expectation that ECB may introduce extraordinary monetary policy measures,
as data continues to point to falling inflation and low growth. One option the bank could consider is another cut in interest rates, possibly to a negative rate.

Draghi has now hinted that the ECB's June inflation expectations are key to that decision, and many analysts expect the ECB to revise its price expectations lower when those projections are released. Berenberg economist Holger Schmieding is forecasting a cut to 0.8%, from 1.0%, for 2014.

Draghi touched on the crisis in Ukraine, saying that although events are not currently at a level to have too much impact on the eurozone economy, the single currency region is more at risk than any other part of the world from a deterioration.

Russian separatist leaders said Thursday that two eastern Ukrainian provinces will go ahead with a referendum on seceding from the country as planned this weekend, despite Russian President Vladimir Putin's call for a delay.

A quieter day in both the UK corporate calendar and the global economic data calendar Friday brings interim management statements from Man Group, Drax Group, Tullett Prebon, Morgan Advanced Materials, and Clarkson.

Chinese inflation data, due overnight, may provide an early market driver. Economists expect consumer price growth to have slowed to 2.0% year-on-year on April from 2.4% in March.

The UK economic focus Friday will be industrial and manufacturing production numbers, along with trade balance figures, all due at 0830 GMT.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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