15th Feb 2016 17:00
LONDON (Alliance News) - Stocks in the UK and Europe closed unambiguously higher Monday, amid hopes for more central bank stimulus following poor economic data from Japan and China and dovish comments by European Central Bank President Mario Draghi later in the day.
In the introductory statement of his quarterly hearing before the European Parliament's Economic and Monetary Affairs Committee, Draghi said the ECB will take action in its next monetary policy meeting in March if downside risks to price stability persist.
"As we announced at the end of our last monetary policy meeting in January, the Governing Council will review and possibly reconsider the monetary policy stance in early March," Draghi said in Brussels.
The focus of the ECB Governing Council deliberations in March will be two-fold, Draghi said. Policymakers will examine the effect of low imported inflation on domestic wage, price and inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices, he noted.
Rate-setters also will analyse the state of transmission of monetary impulses by the financial system and in particular by banks in the backdrop of the recent financial turmoil, the ECB president said.
"If either of these two factors entail downward risks to price stability, we will not hesitate to act," Draghi added.
The euro fell against other major currencies following Draghi's comments. At the close of London equity trade, the euro traded the dollar at USD1.1144 compared to USD1.1218 at the close on Friday.
Investors expect the ECB President to follow through on his comments in the ECB's next monetary policy decision on March 10 by announcing further stimulus, but IG's market analyst Joshua Mahony suspects Draghi may have set the bar too high for himself again.
"Just like in December, Draghi is putting himself into a corner where increasingly expectant markets are likely to be underwhelmed at the main event. Thus, while Draghi remains 'ready to act', there is a possibility that a rate cut may not suffice for markets that are hungry for more QE," Mahony said.
Meanwhile, the pound also was under some pressure against the dollar after Ian McCafferty, a member of the Bank of England's monetary policy committee, said he dropped his call for an interest rate hike in the UK because inflationary pressures in the UK have receded.
In an interview with The Wall Street Journal, McCafferty noted the recent fallback in wage growth has meant there is no longer an urgent need for an interest rate hike in the UK.
"The upside risks to wage costs and inflation haven't disappeared by any sense, but they have been pushed further out," McCafferty told the newspaper.
McCafferty said the Bank of England even has scope to cut interest rates and revive its bond-buying program if the UK economy lurches downward, telling WSJ: "I certainly don't believe we are out of ammunition."
Until the Bank of England's most recent monetary policy decision at the beginning of the month, McCafferty had been the sole member of the MPC who had called for a 25 basis point increase to the central bank's bank rate which currently stands at 0.5%.
At the European stock market close, the pound traded the dollar at USD1.4437, only slightly below USD1.4455 at the same time on Friday.
The FTSE 100 index closed up 2.0% at 5,824.28 points, the FTSE 250 up 1.9% at 15,728.10, and the AIM All-Share up 1.0% at 671.66.
In Europe, the French CAC 40 closed up 3.0% and the German DAX 30 closed up 2.7%.
Wall Street was closed on Monday for President's Day.
Stocks in the UK and Europe rose strongly at the open after broad gains in Asia. The Nikkei 225 index in Tokyo closed up 7.2% and the Hang Seng in Hong Kong up 3.3%. The Shanghai Composite avoided heavy losses on Monday, closing down 0.6%, reopening after the Lunar New Year celebrations, having missed a week of global market declines.
Weak economic data from Japan and China raised hopes that the People's Bank of China and the Bank of Japan may ease monetary policy further to support their economies.
Japan's gross domestic product contracted an annualised 1.4% on year in the fourth quarter of 2015, preliminary readings from the Cabinet Office revealed. That missed forecasts for a decline of 0.8% following an upwardly revised 1.3% increase in the third quarter.
"The market, today, is clearly hoping the authorities will step in," said analysts at Societe Generale in response to the gains in the Tokyo stock market.
In China, data from the General Administration of Customs showed the country's exports plunged 11% year-over-year at the start of the year, much faster than the 2.0% fall expected by economists. Imports slumped by even more in January, down 19% from a year ago. The expected decrease for the month was only 3.9%.
"No severe sell-off in Chinese markets after a week's holiday and a massive rally in Japan allowed financial stocks to break out of the doghouse and lead Europe's major indices higher buoyed by HSBC's decision to stay in the City of London," said Jasper Lawler, market analyst at CMC Markets.
The board of HSBC Holdings decided unanimously that its headquarters will remain in the UK, extending a stay stretching back to 1992, when the former Hongkong & Shanghai Banking Corp acquired Midland Bank and then moved its head office to the capital from Hong Kong, where it was founded in 1865.
The banking giant's threat to leave its Canary Wharf headquarters came in April 2015, when a review was first confirmed at its annual meeting of shareholders. The later stages of the review pitted the group's home markets of the UK and Hong Kong against one another, the bank said, with London's victory confirming the capital's importance as an international financial hub.
"As we evaluated jurisdictions against the specified criteria, it became clear that the combination of our strategic focus on Asia and maintaining our hub in one of the world's leading international financial centres, London, was not only compatible, but offered the best outcome for our customers and shareholders," Chairman Douglas Flint said in a statement.
HSBC shares closed up 1.4%.
Reckitt Benckiser Group was the best performer in the FTSE 100, up 6.8%. Continuing margin improvements helped the company offset currency-hit net revenue to deliver a higher pretax profit in 2015 and it expects more improvements in its margins in 2016, albeit with slightly weaker like-for-like sales growth due to a slower start to the cold and flu season.
The group, which makes products including painkiller Nurofen, Durex condoms and Finish dishwashing tablets, said pretax profit for the year to the end of December was GBP2.21 billion, up 3.8% from GBP2.13 billion in 2014.
Net revenue was GBP8.87 billion, up marginally from GBP8.84 billion the year earlier, but cost of sales declined enough to offset a minor uptick in its net operating costs.
Reckitt said the improvement in margins was down in part to a good sales mix, benefits from low commodity prices, and cost cutting undertaken across the business. Sales growth in constant currencies hit 5.0% in the year and 6.0% on a like-for-like basis, but this was held back on a reported basis by adverse currency translation effects.
Property developer Hammerson closed up 4.6% as its prime retail portfolio in the UK helped it to deliver a rise in pretax profit and rental income for 2015, the company said.
Hammerson said its pretax profit for the year to the end of December was GBP731.6 million, up from GBP702.1 million a year earlier as net gains from its property investments, including those with joint ventures and associates, increased.
The company added that the strong performance for its destination shopping centre outlets has continued into 2016, and it remains confident this trend will persist.
Gold miners ended as the worst performer in the blue-chip index after the price of gold gave back some its recent gains. The metal traded at USD1,205.20 an ounce at the London close Monday, down from USD1,234.70 on Friday. This sent Fresnillo down 2.6% and Randgold Resources down 2.4%.
Oil meanwhile moved steadily higher. At the London stock market close, Brent crude was quoted at USD33.57 a barrel compared to USD32.87 on Friday.
In the FTSE 250, Fidessa Group ended up 12% after the company dismissed the notion that planned investments could restrict its ability to pay special dividends to shareholders, posted full-year earnings slightly ahead of market expectations, and said it continues to be hurt by tough markets for its investment banking clients.
The guidance came as the financial markets software company reported flat pretax profit in 2015, at GBP39.1 million, as revenue rose by 7.4% to GBP295.5 million and expenses before accounting for the effects of amortisation and acquired intangible assets increased by 8.7% to GBP256.4 million. Operating margins were weakened by the group's investment pipeline, Fidessa said.
Fidessa lifted its ordinary dividend for the year to 38.5 pence from 38.1p, and maintained a special payment of 45.0p.
Topping the economic calendar Tuesday, UK inflation readings are at 0930 GMT. ZEW economic sentiment surveys for Germany and the eurozone are at 1000 GMT, the New York empire state manufacturing index is at 1330 GMT, and the US National Association of Home Builders' housing market index is at 1500 GMT.
The UK corporate calendar for Tuesday is headlined by FTSE 100 miner Anglo American's 2015 results. Also reporting full-year results are precision instrumentation and controls manufacturer Spectris and car seller Pendragon. Real estate investment trust A&J Mucklow Group, solid fuels and bulk material logistics company Hargreaves Services and microwave electronic products manufacturer Filtronic report interim results.
By Neil Thakrar; [email protected]; @NeilThakrar1
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HSBC HoldingsRB..LRandgold ResourcesHammersonFidessa GroupFresnillo