UK MIDDAY BRIEFING: ECB Cuts Rates, More To Follow

LONDON (Alliance News) - The European Central Bank on Thursday cut its key interest rate to a record low and embraced a negative deposit rate, the first for a leading central bank, as it tries to fight the low inflation that is threatening to derail the euro area's fragile economic recovery.

The reductions in the cost of money are expected to form part of a package of sweeping measures designed to haul the eurozone out of a low-inflation spiral and boost bank lending.

The Governing Council, led by President Mario Draghi, cut the refinancing rate to a record low 0.15% from 0.25%, following its policy meeting in Frankfurt. The bank also slashed the deposit rate, which was already at zero, to -0.10%, which in effect would charge Eurozone banks for parking excess funds at the ECB.

The ECB will release a separate statement detailing the implementation of the negative deposit facility rate at 1430 BST, after Draghi gives his press conference at 1330 BST. Analysts expect Draghi will say the bank plans to pump more money into the eurozone financial system by offering new long-term cheap loans under its Long-Term Refinancing Operations programme.

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FTSE 100: flat at 6,819.82
FTSE 250: down 0.2% at 15,956.77
AIM ALL-SHARE: down 1.7% at 798.71
GBP-USD: up at 1.6743
EUR-USD: down at 1.3567
GOLD: up at USD1,244.80 an ounce
OIL (Brent): down at USD107.88 a barrel
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Top UK Corporate News
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GlaxoSmithKline has agreed to a USD105 million settlement covering 44 US states over allegations that it unlawfully promoted its asthma treatment Advair and antidepressants Paxil and Wellburtin. As part of the settlement, announced on Wednesday by California attorney general Kamala Harris, Glaxo is required to continue its Patient First Program through to at least March 2019, amongst other stipulations such as a requirement that scientifically trained personnel must be ultimately responsible for developing and approving responses to health care provider questions on an unbiased, non-promotional basis. The Patient First Program reduces the financial incentives for sales representatives, and was brought into Glaxo's US operations in 2011. Following a spate of investigations across its international operations, starting with large scale bribery investigations from Chinese Authorities, Glaxo is implementing a new compensation programme in all countries it operates in by 2015.
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The Association of Mineworkers and Construction Union has rejected a government-brokered proposal for an ZAR800 monthly pay increase in order to end strikes which have crippled South Africa's platinum mining industry, Business Day reported. The union met with the Department of Mineral Resources for South Africa on Tuesday and discussed the possibility of an ZAR800 monthly increase to employees. However, according to the South African newspaper, the union rejected the offer and said its stance remains that of a ZAR12,500 basic wage. On Wednesday, the Mineral Resources Minister Advocate Ngoako Ramatlhodi met with the platinum miners Lonmin, Impala Platinum Holdings and Anglo American Platinum, a subsidiary of Anglo American to discuss a further proposal from the AMCU, which the producers are currently mulling over.
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The US Court of Appeals in New Orleans has ruled that British oil giant BP and Anadarko Petroleum, as co-owners of the ill-fated Macondo well, are automatically liable for violations of the pollution law. The two companies may face billions of dollars in fines. The Macondo well exploded in April 2010, triggering the Gulf of Mexico oil spill. While the US claims that 4.2 million barrels of oil were dumped into the Gulf of Mexico, BP pegs the figure at 2.45 million barrels.
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Lloyds Banking Group said that it had agreed to sell a portfolio of UK commercial real estate loans for GBP352 million to Promontoria Holding 109 B.V., an affiliate of Cerebus Global Investors. The gross assets of the portfolio are GBP536 million, Lloyds said, and produced a loss of GBP17 million in 2013. Lloyd's said that it will use the proceeds of the sale for "general corporate purposes" and does not expect the sale to effect its capital position due to provisions it has already taken against the assets. It is the latest in a string of commercial real estate loan sales that Lloyds has made.
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Online fashion retailer ASOS lowered its profit guidance for the current financial year and next year, after saying it was hit by heavy discounting, and sterling strength which took a big chunk out of its international business. ASOS shares dropped 44% on the warning to a 52-week low of 2,529.00 pence soon after at the open. The shares are currently quoted at 3,120.00 pence, down 31%. Finance Director Nick Beighton told journalists that full-year profits will fall to around GBP45 million, compared to its previous profit guidance given in March of around GBP63 million to GBP65 million. ASOS also lowered its profit expectations for the next financial year, saying it was "resetting its expectations".
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Property website Zoopla Property Group and lending and savings company OneSavings Bank both priced their London initial public offerings. Additionally, real estate investment trust Secure Income REIT began trading on the smaller AIM market. Zoopla priced its offering at a range between 200 pence to 250 pence per share, giving it an implied value of GBP940 million at the mid-point of the range. It said it expects to join the FTSE 250 soon after listing. OneSavings Bank priced its offering at 170 pence, giving it a total market capitalisation of GBP413 million. It expects to raise GBP134 million in total from the offering, of which it will receive GBP41.5 million, and its major shareholder OSB Holdco Ltd around GBP93 million.
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Johnson Matthey said pretax profit increased in its full year, driven by revenue growth at its Emission Control Technologies and Process Technologies divisions. The multinational chemicals and precious metals company said its pretax profit jumped 17% to GBP406.6 million for the twelve months ended March 31, from GBP348.6 million the previous year, as revenue increased 4.0% to GBP11.16 billion, from GBP10.73 billion. It proposed a final dividend of 45.5 pence, resulting in a full year dividend increase of 10% to 62.5 pence.
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Galliford Try said that its infrastructure business won a highways maintenance deal in the Midlands, expected to be worth about GBP81 million over three years.
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Online domestic appliance retailer AO World said it swung to a loss in its recent financial year, on the back of costs associated with its recent stock market flotation in London, even as revenue surged on strong volume growth in domestic appliances. The group, which will join the FTSE 250 index on June 23, said the current financial year has started well, and trading has been in line with its expectations. It is planning to broaden its product range in the UK ahead of its previous schedule, and it said its European strategy is progressing well. "Our UK business continues to build strongly, aided by a successful rebranding, introduction of same-day delivery, and entering the small domestic appliance and television markets," said Chief Executive John Roberts.
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Wm Morrison Supermarkets is set to announce a wave of management restructuring within its stores, which could see as many as 2,000 job losses, according to The Guardian. The newspaper said the supermarket chain's plans to slim down management will be announced in coming weeks, in a move resulting from trials of three possible smaller management structures in around seven of its new stores.
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AIM MOVERS
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Paragon Diamonds is a big gainer after it received positive results from an independent modelling report at the Lemphane kimberlite pipe project in Lesotho, supporting improved economics of the project ahead of the start of production. It now expects to uncover a diamond over 100 carats for every million tonnes processed at the site and that around 12% of carats will be diamonds over 9 carats. Independent Oil & Gas is a big faller after it said the field development plan at the Blythe Field and the appraisal well at the Skipper discovery are experiencing delays, as the operators of those projects struggle to find suitable vessels and rigs. Submission of the field development plan for Blythe to the Department of Energy & Climate Change is now expected in the fourth quarter, while drilling of the appraisal well on Skipper is now scheduled for the second or third quarter of 2015.
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Top Economics And General
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As widely expected, the Bank of England on Thursday kept its interest rate at a historic-low and the size of quantitative easing at GBP 375 billion. The Monetary Policy Committee governed by Mark Carney voted to leave the key bank rate unchanged at 0.50%. The rate has been at the current 0.50% since March 2009.
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Average house prices in the UK rose 3.9% month-over-month in May following two months of declines, as demand outstripped supply, according to a report released by Lloyds Banking Group's Halifax division. The pace of gain in house prices was the highest since October 2002, with the average house price now at 184,464 pounds. In April and May, house prices had slid 0.3% and 1.2%, respectively. Halifax noted that even as new buyer enquiries grew steadily so far this year, the number of homeowners providing instructions to put their property on the market for sale declined for the fourth consecutive month.
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Car registrations in the UK rose for the 27th consecutive month in May, breaking the record set in the 1980s for the longest stretch of growth, figures from the Society of Motor Manufacturers and Traders, or SMMT, revealed Thursday.The number of new car registrations rose to 194,032 units in May, rising 7.7% year-over-year. This is the highest registration volume for May since 2004.
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The Irish service sector continued to grow in May, with activity and new business rising sharply in the month, the results of a survey by Markit Economics showed. The seasonally adjusted Investec purchasing managers' index fell slightly to 61.7 in May from 61.9 in April. Any reading above 50 indicates expansion in the sector. The reading suggests a sharp expansion by the service sector, in line with the increased new orders in May.
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Germany factory orders recovered at a faster than expected pace in April, official figures revealed. Factory orders increased 3.1% in April from March, Destatis reported. Economists were expecting a 1.4% rise in orders after falling 2.8% in March.
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Activity in China's services sectors continued to expand in May but at a slower pace, the latest survey from HSBC and Markit Economics revealed. The services PMI saw a score of 50.7 last month, the bank said - down from 51.4 in April. The composite PMI climbed into expansion at 50.2 in May - up from the revised 49.5 in April (originally 49.4) and snapping a three-month string of decline.
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Former heavyweight boxer Vitali Klitschko on Thursday assumed office as mayor of the Ukrainian capital Kiev. In a speech to the city assembly, Klitschko promised "zero tolerance for corruption" and the introduction of transparent and electronic governance in the Ukrainian capital. "Kiev was long robbed by dirty hands who stuffed their pockets at the citizens' expense," he said, according to a transcript on his party's website. The pro-Western Klitschko rose to political prominence during the Euromaidan protest movement that swept President Viktor Yanukovych out of office in February. However, he withdrew a bid to run for president and supported billionaire Petro Poroshenko instead.
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The ruling party in South Korea narrowly lost out to the opposition in local elections, reports said Thursday, in the first nationwide vote since the fatal sinking of the Sewol ferry in April. Amid the highest voter turnout in 16 years, the opposition New Politics Alliance for Democracy (NPAD) won nine gubernatorial seats, while the conservative Saenuri Party won eight, Yonhap News Agency reported. The ruling party had feared a backlash at the polls after public anger erupted over the deaths of some 300 people, mostly high school students, in the sinking of the ferry off the country's south-west coast.
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Afternoon Watchlist (all times British Summer Time)
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13:30 EU ECB Monetary policy statement and press conference
13:30 US Jobless Claims
15:30 US EIA Natural Gas Storage change
18:30 US Fed Minneapolis's Narayana Kocherlakota speech
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Friday's Key UK Corporate Events
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Fuller Smith & Turner Full Year Results
KCOM Group Full Year Results
Scottish Investment Trust Half Year Results
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Friday's Key Economic Events (all times British Summer Time)
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07:00 Germany Current Account
07:00 Germany Industrial Production
07:00 Germany Trade Balance
07:45 France Budget
07:45 France Trade Balance
09:30 UK Consumer Inflation Expectations
09:30 UK Trade Balance
13:30 US Nonfarm Payrolls
13:30 US Unemployment Rate
20:00 US Consumer Credit Change

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