9th Mar 2016 12:15
LONDON (Alliance News) - London stocks were mixed Wednesday midday, with traders and investors avoiding risk ahead of Thursday's European Central Bank meeting, from which a significant package of stimulus measures is expected.
"The choppy and indecisive nature of early FTSE trading today is a clear nod to the existence of tomorrow's huge ECB meeting, the week's big risk event," said IG analyst Joshua Mahony. "We expect to see hesitant and unpredictable trading as we head into the ECB meeting, as traders exit positions or reposition their portfolio ahead of the almost guaranteed volatility tomorrow."
Analysts widely expect the ECB to announce a deposit rate cut, as well as an increase in the size and duration of its asset purchases programme, but they differ on the likely mixture of stimulus measures. The decision will come after the minutes from the last meeting, held on January 21, revealed that, though no changes were approved, several Governing Council members had wanted a cut of 10, or even 20, basis points to the already negative deposit rate.
A 10 basis points cut to the deposit rate on Thursday is expected by many analysts, and DailyFX.com's currency strategist Christopher Vecchio believes it is already priced in the euro. The single currency was quoted at USD1.0966 Wednesday.
Berenberg and Societe Generale expect an even deeper cut of 20 basis points.
SocGen analyst Anatoli Annenkov said markets are "increasingly unconvinced" about the ECB's power, and believes "we are approaching the 'effective' limit of the central bank's tools". Annenkov said the are "no limits to ECB's willingness, but clear limits to its effectiveness".
The FTSE 100 was up 0.6%, or 36.73 points, at 6,162.17. The FTSE 250 was down 0.2% at 16,623.37 and the AIM All-Share was flat at 699.85.
Michael van Dulken, head of research at Accendo Markets, said the mixed picture could represent some sort of consolidation before another leg higher. Van Dulken pointed out that the driver could be not just a potential supporting message from the ECB on Thursday, but also from the Bank of England, the Bank of Japan and the US Federal Reserve, all scheduled to provide updates to the market next week.
Insurer Prudential was the top blue-chip gainer midday Wednesday, up 4.3%, after reporting higher net profit in 2015 driven by double-digit growth at its operations in Asia, the US and the UK and declaring a special dividend payment to shareholders.
Net profit rose to GBP2.58 billion in 2015, the life insurer said in a statement, from GBP2.22 billion in 2014. The life insurer increased its full-year ordinary dividend by 5.0% to 38.78 pence per share, and declared a special dividend of 10p.
"I am pleased to be able to announce such a strong performance today despite the current macroeconomic and political uncertainty, which have created a more volatile and unpredictable short-term outlook for global growth," Chief Executive Mike Wells said.
Energy companies SSE and Centrica also were in the green, up 2.0% and 1.6%, respectively, after upgrades from JPMorgan. SSE was upgraded to Overweight from Underweight, while Centrica was lifted to Neutral from Underweight.
Royal Bank of Scotland Group was upgraded to Hold from Sell by Berenberg, and that was driving the lender's shares up 1.7%. Analysts James Chappell and Peter Richardson said RBS's core business, which is focused on UK corporate and retail banking, is strong. They believe the bank's deleveraging and focus on corporate banking leaves it less exposed, relative to peers, to the highly competitive UK retail lending environment.
Pushed the other direction by an analyst rating, Burberry Group was firmly in the red, down 6.0%, after the stock was cut to Hold from Buy by HSBC. The luxury fashion retailer had been the best performer in the blue-chip index on Tuesday, closing up 5.2%, after the company sought help from its financial advisers to defend itself against a possible takeover bid after a mystery investor built up a 5.0% stake in the company, according to a report by the Financial Times.
Another downgrade sent Standard Chartered shares down 0.2%. Investec cut its recommendation on the emerging markets bank to Sell from Hold.
Investec analyst Ian Gordon forecast Standard Chartered to be loss-making in 2016, as the revenue outlook for years 2016 and 2017 "appears even worse than we had previously anticipated, and with (we think) relatively limited net cost reduction near-term".
Nevertheless, Gordon said "given the scale of planned balance sheet reduction, we do believe that Standard Chartered has sufficient capital to work through a fundamental repositioning of the business".
In the FTSE 250, Cairn Energy was the best performer, up 9.1% at 185.10 pence, its highest level so far in 2016. The oil and gas company said it has successfully completed its second appraisal well offshore Senegal, adding it is "delighted" with the test results.
Shares in packaging company DS Smith were up 1.8%, after it said trading has remained in line with its expectations in the second half and backed its medium-term targets. DS Smith said volume growth has been strong in four months since the start of November, particularly in western and south eastern Europe.
The Restaurant Group was the biggest mid-cap faller, down 18%. The Frankie & Benny's, Chiquito and Garfunkel's chains owner were in-line, but stock analysts were disappointed by the restaurant operator's current trading and outlook statement.
Panmure Gordon cut its rating to Hold from Buy. Analyst Anna Barnfather was disappointed a bounce back failed to materialise in current trading, leading her to take a more cautious stance on like-for-like sales growth going forward. Barnfather also highlighted that the group's new stores in retail park locations were suffering from lower footfall against refurbished competition.
Also in the FTSE 250, shares in security services provider G4S were down 12% after it booked more provisions on troublesome legacy contracts in the UK, hit by the sharp rise in the number of asylum seekers it has to house, as pretax profit dipped in 2015 and it outlined plans to offload more businesses.
Building products distributor SIG was down 7.8%. The group said pretax profit increased in 2015 due to lower one-off costs, but revenue was dragged lower by a challenging European market and a slowdown in the UK repair, maintenance and improvement segment.
US stocks were called for positive open, with the DJIA and the S&P 500 both pointed up 0.5% and the Nasdaq 100 seen up 0.6%.
In the US economic calendar, US wholesale inventories are at 1500 GMT, at the same time as the National Institute of Economic and Social Research's UK GDP estimate. Just after is the US Energy Information Administration's crude oil stocks at 1530 GMT.
The pound rose after the UK industrial production increased for the first time in 3 months in January. Data from the Office for National Statistics showed that industrial output grew 0.3% on a monthly basis, reversing December's 1.1% decline. However, the pace of growth was slightly slower than an expected 0.4% increase.
Sterling was quoted at USD1.4225 at midday, having touched a high of USD1.4241 shortly after the data.
By Daniel Ruiz; [email protected]
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