20th Oct 2016 16:05
LONDON (Alliance News) - The FTSE 100 overturned its losses on Thursday after European Central Bank President Mario Draghi calmed market concerns about tapering its quantitative easing programme and left the door open to a QE extension in December.
The ECB left its key interest rates unchanged and maintained the pace of its asset purchases at EUR80.0 billion a month. The central bank reiterated that the programme is intended to run until the end of March 2017, or beyond if necessary.
In Draghi's post-decision press conference in Frankfurt, it was what wasn't discussed in the Governing Council's meeting that caused the greatest volatility. Draghi confirmed that policymakers did not discuss a possible extension to QE beyond the March 2017 date.
Analysts expect the ECB to announce, in its next decision on December 8, an extension the bond-buying programme, to possibly September 2017, as it attempts to spur economic growth and to fire up inflationary pressures.
There was also a keen interest around discussions of winding down QE, following a Bloomberg report earlier this month which stated the ECB is reaching a consensus to start gradually winding down bond purchases before the conclusion of quantitative easing.
However, Draghi confirmed that tapering was not discussed.
"We did not discuss tapering or the intended horizon [of the programme]," the ECB chief said.
"An abrupt end to the bond-buying programme is unlikely," he added.
Draghi said the December meeting would set the stage for monetary policy in the near future and analysts believe his press conference left prospects for a December QE extension unchanged.
"The December meeting brings an update on the Eurosystem committees reviewing the ECB's tools, and there will be new staff forecasts. Sequentially, these are important to have an informed discussion that will lead to new actions," said Marc Chandler, head of currency strategy at Brown Brothers Harriman.
"Market participants are unlikely to change views of the trajectory of ECB policy. An extension of QE is likely, and most think by six months," Chandler added.
Lloyds also maintained their expectation for a six month extension to QE in December.
"He did confirm that an abrupt end to QE was 'unlikely' (which is also not a surprise), meaning that asset purchases will continue beyond next March, but at a pace as yet unknown and which won’t be decided until December," Lloyds noted.
The euro initially spiked after Draghi said there had been no discussion of an extension, peaking at USD1.1039 against the dollar. However, the currency quickly depreciated as the press conference went on and at the London stock market close traded at USD1.0931, lower than the USD1.0965 seen at the close on Wednesday.
The pound was quoted at USD1.2245 at the close Thursday, lower than the USD1.2296 seen at the same time on Wednesday.
The FTSE 100 recovered from its earlier lows to end in positive territory, up 0.1%, or 4.98 points, at 7,026.9. The FTSE 250 index closed down 0.5%, or 95.48 points, at 17,945.05, and the AIM All-Share ended up 0.1%, or 0.58 point, at 827.12 .
The BATS UK 100 index ended down 0.1% at 11,870.71, the BATS 250 closed down 0.6% to 16,290.85, and the BATS Small Companies closed flat at 11,032.45.
European equities outperformed London, with the French CAC 40 index closing up 0.4% and the German DAX 30 up 0.5%.
On Wall Street at the London close, the DJIA was down 0.2%, the S&P 500 was down 0.3% and the Nasdaq Composite was down 0.4%.
On the London Stock Exchange, airlines International Consolidated Airlines, up 2.4% and easyJet, up 1.7%, both ended amongst the best FTSE 100 performers after a positive update from Lufthansa.
The German airline increased its full-year forecast for adjusted earnings before interest and tax from 'below previous year' to 'approximately on previous year's level'.
Irish carrier Ryanair was also boosted, closing up 2.9%.
The main news in the FTSE 250 index were profit warnings from NCC Group, Keller Group and Senior.
Cyber security company NCC Group led decliners in the FTSE 250 index closing down 36%. The company said that, while it remains on track to meet expectations in its current financial year, problems in its Assurance business in the first four months will mean its results are more heavily weighted to the second half than previously envisaged.
NCC's Assurance arm faced setbacks, including three large contract cancellations, which were unrelated, a large contract deferral and some difficulties in renewing managed security services contracts. These issues have caused a "significant erosion of margin", NCC said, adding it is working to "remediate" these issues.
Keller closed down 27% after the ground engineer said its results for 2016 will miss market expectations due to weakness in its Asia Pacific business. The company now expects its underlying results for 2016 will be around 15% lower than current market estimates.
Third in the line of fallers was aerospace, military and vehicle components manufacturer Senior, down 13%. The company issued a profit warning as the ongoing problems in its Flexonics divisions were exacerbated by a slower-than-expected ramp-up of new programmes for its Aerospace business in the third quarter.
International Personal Finance closed as the biggest FTSE 250 gainer, up 9.4%. The sub-prime lender said there was a strong increase in its amount of credit issued in the third quarter and impairments were towards the bottom end of its target range, although elevated impairment levels in its Mexico business are set to continue.
On the AIM All-Share, technology provider Vislink closed up 64% after agreeing to sell Vislink Communication Systems business for USD16.0 million as part of its restructuring efforts to ensure it can be profitable moving forward. The value of that deal is close to the current market capitalisation of Vislink.
Oil prices gave up the gains made on Wednesday on the back of US Energy Information's crude oil stocks. At the European equities close on Thursday, Brent was quoted at USD51.41 a barrel, much lower than the USD52.93 seen at the close on Wednesday.
The price of gold slipped to USD1,266.01 an ounce at the close Thursday, versus USD1,271.70 at the same time on Wednesday.
In the economic calendar for Friday, China's house price index is at 0230 BST, followed by UK public sector net borrowing figures at 0930 BST before the EU leaders summit kicks off at 1300 BST, the first for UK Prime Minister Theresa May since taking office. Baker Hughes will also publish US rig count figures at 1800 BST.
In the UK corporate calendar, InterContinental Hotel Group releases a third quarter trading statement. There are also trading statements due from IT infrastructure firm Computacenter, veterinary pharmaceuticals business Dechra Pharmaceuticals, gold-focused Acacia Mining, diagnostic testing kit manufacturer Immunodiagnostic Systems Holdings and currency manager Record.
By Neil Thakrar; [email protected]; @NeilThakrar1 and Joshua Warner; [email protected]; @JoshAlliance
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