23rd Oct 2015 16:15
LONDON (Alliance News) - Stocks in Europe and the US received a boost on Friday after the People's Bank of China undertook further monetary easing in the wake of weaker economic growth data earlier in the week, cutting key interest rates for the fifth time this year and reducing its renminbi deposit reserve ratio.
The People's Bank of China cut the one-year lending rate and deposit rate by 25 basis points each to 4.35% and 1.50%, respectively. The new rates will take effect on Saturday. The latest reduction was the sixth since November last year and its most recent since the central bank lowered the interest rates in August by 25 basis points.
The renminbi deposit reserve ratio was cut by 50 basis points to support rural and small businesses. In a statement on its website, the PBoC said the reserve ratio reduction was to maintain reasonably adequate liquidity in the banking system and to guide steady, moderate growth of money and credit.
The moves by the Chinese central bank come after Monday's reading of Chinese GDP, which was the weakest since the beginning of the financial crisis.
Gross domestic product in the world's second largest economy grew 6.9% year-on-year in the third quarter of 2015, slightly slower than the 7% government target and the expansion seen in each of the first two quarters. The growth rate was also the slowest since 2009, but it came in ahead of economists' expectations of a slow down to 6.8%.
Analysts at Nomura said the timing of the required reserve ratio cut was in line with their expectations, but the interest rate cut caught them off guard.
"The move is unlikely to boost [Fixed Assets Investment] growth or economic growth, but should help to relieve corporate pain in the ongoing economic growth slowdown, considering the high leverage of the corporate sector," Nomura said. "Looking ahead, we continue to expect GDP year-on-year growth to decline to 6.4% in Q4 [the fourth quarter] and to 5.8% in 2016."
The rate cuts initially helped to lift commodities as well, given China's importance as a consumer of commodities. However, by the London close commodity prices fell back down with Brent oil quoted at USD47.67 a barrel and Gold quoted at USD1,161.40 per ounce.
Stocks were already trading positively before the Chinese central bank's move due to the dovish stance taken by its European counterpart on Thursday. European Central Bank President Mario Draghi hinted in his press conference at further economic stimulus at the central bank's next meeting in December, even saying that further interest rate cuts were discussed at the meeting that was held earlier this week.
The press conference was held after the ECB left its key interest rates unchanged at a record low for a tenth consecutive policy meeting, with the refinancing rate at 0.05%, the marginal lending rate at 0.30% and the deposit rate unchanged at -0.20%.
The euro initially dropped following the press conference on the dovish tone and continued its downward trend on Friday. At the London close, the euro traded the dollar at USD1.1023.
The FTSE 100 closed up 1.1% at 6,444.08 points, meaning it closed the week up 1.0%. The blue-chip index also touched its highest level since August 19 at 6,487.89. The FTSE 250 ended up 1.2% at 17,240.70 and the AIM All-Share closed up 0.4% at 747.48. At the London close the pound traded the dollar at USD1.5334.
European stocks ended much higher, with the CAC 40 in Paris closing up 2.5% and the DAX 30 ending up 2.9%. The two indexes closed up 4.7% and 6.8% respectively on the week.
Wall Street was also higher at the London close, with the DJIA up 0.5%, the S&P 500 up 0.7% and the Nasdaq Composite was up 1.9%, boosted by earnings from heavy-weight stocks including Alphabet, Microsoft and Amazon.
In London, builders' merchant Travis Perkins closed as the best blue-chip performer up 5.1%, staging a partial recovery having dropped 6.0% on Thursday after the company warned that its earnings before interest and taxation will be at the low end of market expectations due to weaker-than-expected third quarter activity in the repair, maintenance and improvement market in the UK.
The shares were helped higher by Citigroup upgrading its rating on Travis to Buy from Neutral, which made up for price target cuts on the stock by Liberum, Numis, JPMorgan Cazenove, UBS and Barclays.
Citigroup said that given the share price falls, the valuation on Travis now looks undemanding, especially given it expects compound annual growth in its earnings per share of 11% for 2016 to 2017, supported by a positive macroeconomic backdrop and ongoing strategic measures.
Having already fallen heavily this week following the profit warning it issued on Wednesday, education and publishing group Pearson closed as the worst blue-chip performer, down 5.2% at 900.50 pence, following a ratings downgrade and price target cut by two banks.
Exane BNP Paribas cut Pearson to Neutral from Outperform and slashed its target price to 1,000p from 1,650p. In addition, Berenberg cut its target price to 800p from 1,100p and reiterated its Sell rating.
Bookmaker William Hill was the biggest decliner in the FTSE 250, down 7.9%, having hit its lowest price since December 2012. The company reported a drop in net revenue and operating profit in the third quarter of 2015 and said it now expects full-year operating profit to be around the bottom of the analyst consensus range.
William Hill said net revenue in the 13 weeks ended September 30 fell 9% on the same period the year before, as operating profit dropped 39%. As a result, the company now expects operating profit for the full year to be around the lower end of the GBP290.9 million to GBP312.1 million analyst consensus range. That would be down from the GBP372.2 million operating profit that William Hill achieved in 2014.
TalkTalk Telecom Group was down 4.4% after the telecommunications company confirmed that a criminal investigation has been launched by the Metropolitan Police's Cyber Crime Unit following a "significant and sustained" cyber attack on the company's website on Wednesday.
TalkTalk said the investigation by the Met is ongoing but said that the data compromised in the hack may have included names, addresses, dates of birth, phone numbers and email addresses. More importantly, it said the details at risk also included TalkTalk account information and credit card or bank details of its customers. TalkTalk has around 4.0 million subscribers, all of which have been informed about the breach as a "precaution".
In the economic calendar on Monday, German IFO business sentiment is at 0800 GMT, UK BBA Mortgage Approvals 0930 GMT and German Bundesbank monthly report at 1000 GMT. Later in the day, the Confederation of British Industry releases its industrial trends survey at 1100 GMT, US new homes sales are at 1400 GMT and the Dallas Fed manufacturing business index is at 1430 GMT.
In the UK corporate calendar, advertising and marketing giant WPP releases its third quarter trading statement and life sciences company Avacta Group reports full-year results.
By Neil Thakrar; [email protected]; @NeilThakrar1
Copyright 2015 Alliance News Limited. All Rights Reserved.
Global stocks received a boost on Friday after the People's Bank of China undertook further monetary easing in the wake of weaker economic growth data earlier in the week, cutting its benchmark interest rates for the fifth time this year and reducing its renminbi deposit reserve ratio.
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PearsonWMH.LTravis PerkinsTALK.L