Date: Thursday 05 Jul 2012
- BoE increases QE, maintains Bank Rate
- ECB expected to cut refi rate to 0.75 per cent
- GKN jumps higher after 633m-pound Volvo Aero purchase
The Footsie was registering moderate gains in morning trade on Thursday as investors hoped that the Bank of England would inject more stimulus into the subdued UK economy; the central bank did just that with the Monetary Policy Committee (MPC) announcing additional quantitative easing at midday.
The Footsie, trading around the 5,700 mark this morning, has not closed above that level since May 3rd.
As expected, the MPC maintained the Bank Rate at 0.5% and decided to ramp up its asset purchase programme by £50bn to £375bn.
"Against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases," the MPC said.
Meanwhile, the European Central Bank (ECB) is widely expected to cut the refinancing rate from the current level of 1.0% this afternoon. Gerhard Schwarz, head of Equity Strategy at Baader Bank, said: "The most likely outcome in our view is a 25 basis point cut. A bigger cut would increase pressure on the ECB to move towards 'unconventional' stimulus – something the ECB has been very reluctant to do recently. So with the refi rate standing at 0.75% the ECB could still argue to have some firepower left."
Shares in GKN rocketed after the announcement of its acquisition of Volvo Aero for £633m. To help fund the deal GKN aims to place £140m of new shares with institutional investors, with the rest of the money coming from new debt facilities.
Investec reiterated its 'buy' recommendation for the engineering group this morning, saying that 'The acquisition of Volvo Aerospace has been announced on terms that are better than anticipated in the media.' The broker said that while the cost equity raise are lower than expected, the expected returns are higher.
The decision by Xstrata to postpone the vote on its controversial proposed merger with Glencore International gave a boost to both stocks. The company said that the delay is due to the proposed changes to the management retention awards announced last month. Shareholders were due to vote on the the Xstrata-Glencore merger on July 4th.
Utilitiy giant Centrica fell after Goldman Sachs downgraded the stock to 'neutral' and cut its target price from 441p to 422p.
Insurance group Aviva rose after new Executive Chairman John McFarlane outlined details of its new strategic direction which, not for the first time, will result in changes at the senior management level. The new strategy has three main objectives: narrower focus; building financial strength; and improving financial performance.
Heading the other way was the under-pressure banking sector which was rocked by the LIBOR and mis-selling scandals last week. Barclays, the lender at the centre of the interbank lending rate manipulation claims, was trading slightly lower, while sector peers Royal Bank of Scotland, Lloyds and Standard Chartered were also out of favour.
Homewares retailer Dunelm advanced after saying that total revenue increased 21.2% in the fourth quarter of the group's fiscal year, boosted by the unusually wet weather. However, the group cautioned that it expects consumer spending to remain under pressure.
Recruitment groups Hays and Michael Page were being weighed down by a gloomy trading update from AIM-listed sector peer Robert Walters. The group said that a banking sector slow-down in the Asia Pacific region put a dent in net fee income in the second quarter.
FTSE 100 - Risers
GKN (GKN) 210.20p +12.65%
Xstrata (XTA) 855.00p +4.17%
Glencore International (GLEN) 320.00p +2.55%
Aviva (AV.) 287.50p +2.17%
Rio Tinto (RIO) 3,199.50p +1.81%
Experian (EXPN) 940.50p +1.57%
Marks & Spencer Group (MKS) 334.10p +1.49%
Kazakhmys (KAZ) 762.00p +1.46%
BP (BP.) 436.50p +1.38%
Wolseley (WOS) 2,464.00p +1.32%
FTSE 100 - Fallers
Royal Bank of Scotland Group (RBS) 210.80p -1.72%
Kingfisher (KGF) 277.30p -1.49%
ICAP (IAP) 326.40p -1.39%
Evraz (EVR) 263.00p -1.31%
Whitbread (WTB) 2,064.00p -1.15%
United Utilities Group (UU.) 666.00p -1.11%
Centrica (CNA) 314.30p -1.07%
British Land Co (BLND) 509.50p -0.97%
Pennon Group (PNN) 754.00p -0.92%
Lloyds Banking Group (LLOY) 31.38p -0.90%
FTSE 250 - Risers
Gem Diamonds Ltd. (DI) (GEMD) 222.80p +5.39%
Chemring Group (CHG) 275.60p +3.11%
Dunelm Group (DNLM) 525.50p +2.64%
Ferrexpo (FXPO) 228.60p +2.42%
Cape (CIU) 274.80p +1.82%
New World Resources A Shares (NWR) 339.80p +1.77%
Persimmon (PSN) 637.00p +1.76%
Domino Printing Sciences (DNO) 561.00p +1.63%
Invensys (ISYS) 238.80p +1.62%
SIG (SHI) 101.90p +1.60%
FTSE 250 - Fallers
Michael Page International (MPI) 365.00p -3.92%
Man Group (EMG) 65.60p -2.89%
FirstGroup (FGP) 214.30p -2.68%
WH Smith (SMWH) 540.50p -2.35%
TalkTalk Telecom Group (TALK) 185.60p -2.32%
Home Retail Group (HOME) 84.05p -2.32%
Hays (HAS) 74.65p -2.29%
Yule Catto & Co (YULC) 142.00p -2.20%
Perform Group (PER) 395.30p -2.06%
Bodycote (BOY) 344.50p -1.99%
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