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Draghi drags FTSE off lows with stimulus hint
Markets lift off lows after European Central Bank president Mario Draghi hints at more quantitative easing in March.
Update: The FTSE 100 and global markets have lifted off lows after European Central Bank (ECB) president Mario Draghi hinted at more quantitative easing in March and left the door open to further interest rate cuts.
The news helped the UK blue-chip index add to the day's gains to trade 69 points, or 1.2%, higher at 5,742 following yesterday's spectacular 200-point drop.
The gains were mirrored by eurozone markets, which also lifted off lows. The French CAC 40 rose 1.4%, Germany's DAX 30 added 1.3%, Spain's Ibex traded 1.3% higher and Italy's FTSE MIB jumped 2.9%. US markets meanwhile edged higher, with the Dow Jones up 0.6% and the S&P 500 adding 0.5%.
The ECB kept interest rates on hold as expected, but it was Draghi's press conference that caught the attention of investors. He said the bank would 'review and possibly reconsider our monetary policy stance at our next meeting in early March' and hinted interest rates could fall even further from current levels.
Deposit rates are currently -0.3%, meaning banks have to pay to park their money with the ECB. 'We expect [interest rates] to remain at present or lower levels for an extended period of time,' said Draghi.
'What was expected to be a dull first meeting of the year turned out to be an exciting ECB meeting with ECB president Mario Draghi opening the door widely for new ECB action in March,' said Carsten Brzeski, economist at ING.
'Every time it looked as if the ECB was done with its stimulus and willing to wait until all measures have had enough time to unfold their full impact, Draghi puts another log in the fire.'
Royal Mail leads steady FTSE
After an early bounce the FTSE 100 steadied at 17 points, or 0.3% higher, at 5,690, after the 3.5% slump on Wednesday. In Europe the FTSEurofirst 300 index added 4 points, also a rise of 0.3%, to 1,271.
Pearson (PSON) led the UK index higher, its shares leaping 8% to 709.5p after the education publisher announced plans to cut jobs and hold its dividend in response to the slowdown in its US business.
Royal Mail (RMG) also impressed, up 3.2% to 435p, after the postal group reported a better than expected increase in British parcel volumes of 4% in the first nine months of its financial year and said it was on track to meet its cost reduction targets.
SSE (SSE) was the biggest blue chip faller, down 3.5% to £13.35, as the utility traded ex dividend.
Investors’ mood remained cautious, however, as the oil price gave up an earlier rise with US crude trading 0.7% down at $28.15 a barrel.
A poll by Interactive Investors showed 40% of investors believed the market would continue to trade at low levels and were not buying or selling. 16% said they were starting to buy back in, matched by a similar number continuing to sell higher risk investors as they believed the market had further to fall.
Traders were looking ahead to the European Central Bank’s monthly press conference this afternoon. Although ECB president Mario Draghi is not expected to make any policy announcements, he may flag future intervention if growth and inflation in the eurozone sag further.
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by Gavin Lumsden on Oct 21, 2016 at 17:18