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Euro falls as ECB’s Draghi warns of growth risks
FTSE 100 drops back after incoming Bank of England governor Mark Carney provides evidence to MPs.
(UPDATE 14:13) The euro reversed earlier gains to fall sharply as European Central Bank president Mario Draghi provided a gloomy outlook for the eurozone economy, while in the UK shares slipped after comments from incoming Bank of England governor Mark Carney.
The euro, which had traded as high as $1.357 this morning, dropped to $1.3458, a decline of nearly 0.5% while Draghi delivered a statement warning of continued 'economic weakness’, while adding that 'inflationary pressures should remain contained'.
He was speaking after the eurozone bank announced it was holding interest rates on hold, with the main rate remaining at 0.75%, where it has stayed since July.
‘Later in 2013 economic activity should gradually recover, supported by an accommodative monetary policy stance,’ he added.
The euro has been rallying strongly since the start of the year as investors become more confident that the eurozone crisis is coming to an end.
Draghi described this euro appreciation as a sign of confidence in the single currency.
‘4 weeks after putting a rocket under the euro, Mario Draghi's trying to put a lid on it, it seems,’ commented Societe Generale currency analyst Kit Juckes via Twitter.
Equity markets were mixed, with London’s FTSE 100 falling 0.3% to 6275 after Carney made no firm commitment to changing monetary policy committee.
The Bank of England's monetary policy committee also voted to keep its monetary policy unchanged.
(08:42) Vodafone & Ocado among winners as markets pauseInvestors chose to bide their time ahead of key central bank meetings on Thursday, with shares little moved in early trade, but companies including Punch Taverns, Supergroup and Vodafone were all picked out as buying opportunities.
After renewed concerned over the eurozone created the conditions for topsy turvy trading yesterday, Wall Street had eventually closed flat. In Europe this morning, major indices continued that theme, with the FTSE 100 little moved at 6,298.
Investors are awaiting the results of the European Central Bank’s monthly policy meeting, and press conference from Bank president Mario Draghi. The euro rose by 0.3% to $1.3560 ahead of the outcome, while markets were also waiting anxiously for the results of a Spanish sovereign bond auction.
The Bank of England’s board of decision-makers also conclude their monthly meeting today, with no change to monetary policy expected, while incoming governor Mark Carney is due to appear before MPs.
Vodafone on the rise despite European weakness
In London, Vodafone (VOD.L) and Compass (CPG.L) were competing for top spot on the blue chip index. Vodafone shares managed a 2% rise to 173p despite the company reporting a 2.6% decline in group service revenues for the last three months of 2012, hit hard by continued weakness in Europe.
Vittorio Colao (pictured), Vodafone chief executive, commented: ‘Our results continue to reflect very difficult market conditions in Europe.
‘Looking forward, we expect to continue to face difficult market conditions in the coming year.’
Analysts and investors are keeping the faith though. Lawrence Sugarman of Liberum said there was ‘no drama’, expecting shares to continue higher. ‘We believe that some of the negative impacts on revenues in the markets where there were disappointments have been offset by positive margin developments,’ he commented.
‘We expect the short term reaction to be modestly positive and we reiterate our buy case, which is predicated on anticipating Verizon Wireless developments and the view that the shares offer considerable value.’
Andy Halford, Vodafone chief financial officer, reportedly sought to allay concerns over payouts to investors, saying cash flow will be adequate to cover its future dividend payments. Nomura analyst James Britton had warned in a note to clients this morning: 'We reiterate our concerns for income investors and lack of certainty over the forward dividend is an overhang for the shares, in our view.'
Compass and Ocado serve up pleasing results
Compass, the catering company, saw shares rise by 0.8% to 771p after it announced organic revenue growth of nearly 6% in the quarter, beating City expectations.
Panmure Gordon analysts kept their 'buy' rating on Compass shares: 'We think the stock is well placed to sustain relative outperformance given the operational momentum and cash returns to shareholders,' they said.
Ocado (OCDO.L) shares rose 5% to 109p after the grocery delivery company reported full year earnings of £33.5 million, in line with forecasts. The company did however report a pre-tax loss of £0.6 million. ‘Ocado has confirmed another poor year from a financial performance perspective and this set of results does little to change our cautious investment stance on Ocado's shares,’ commented Clive Black of Shore Capital.
Supergroup 'turning point'
Supergroup (SGP.L) shares surged, gaining 10% to 698p after the clothing company delivered a better than expected trading update in what Freddie George of Seymour Pierce said was a ‘turning point in the company’s fortunes’. George explained: ‘We believe that after a year of consolidation, the company has now established a platform in terms of infrastructure and management to push ahead in developing the brand on a multi-channel and overseas basis.’
Both Panmure Gordon and Bank of America Merrill Lynch raised their price targets for Supergroup shares to 788p and 800p respectively.
Punch Taverns (PUB.L) shares rose by 20% to 13p after announcing that it had found some solutions to restructure its debt.
Burberry (BRBY.L) was the biggest faller on the FTSE 100, with shares down nearly 3% to 1,388p after the luxury clothing brand announced changes to its senior management, replacing its chief financial officer.
Citywire Top Stock Smith & Nephew beats forecasts
Smith & Nephew (SN.L) edged 2.7p higher to 708p after the artificial joints maker's fourth quarter results beat analyst expectations, although revenue of $1.08 billion in the three months to the end of 2012 was slightly lower on a year before with earnings per share of 21.6 cents, also down from 21.9 cents. Flat fourth quarter operating profits of $213 million brought the total for the year to $846 million, down from £862 million in 2011. Analysts at Investec cut their recommendation to 'add' from 'buy' but raised their target price for the shares to 755p from 730p. The company, which is seeking to grow its advanced wound management business, is a member of Citywire Top Stocks through its top 10 holding in the Artemis UK Special Situations fund of Derek Stuart. Its largest shareholder is Invesco Asset Management with a 12% stake.
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- Vodafone Group PLC (VOD.L)
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- SuperGroup PLC (SGP.L)
- Ocado Group PLC (OCDO.L)
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- Punch Taverns PLC (PUB.L)
- Smith & Nephew PLC (SN.L)
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by Gavin Lumsden on Sep 30, 2016 at 17:23