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London open: Investors play it safe ahead of ECB
Stocks were hugging the flatline after having started higher as traders pulled in their horns ahead of a much awaited policy announcement from the European Central Bank.
Equities were initially buoyed by a fresh record high overnight on Wall Street for the Dow Jones Transportation average, which triggered a sharp move to the upside in several of the other main stockmarket gauges, such as the S&P 500.
Against that backdrop, as of 0850 GMT the FTSE 100 was 7.20 points or 0.10% higher at 6,909.43.
Traders were watching to see if the UK´s top flight index was able to overcome resistance around the 6,940 point mark before jumping in.
“Extension of December’s bounce to 4.4% and the clearing of 2-month falling highs resistance bodes well for continuation of this Santa Rally towards October’s 7130 all-time highs. Bulls likely need to see overnight highs of 6940 overcome before jumping in. Bears are watchful of any signs that 6900 and yesterday’s 6890 break-out are being troubled,” Accendo Markets‘s Michael van Dulken said.
To take note of, the situation surrounding Italian banks was still very much on investors radars and was one potential risk to watch out for.
Reports on Thursday morning indicated that troubled lender Banca Monte dei Paschi di Siena had asked regulators for more time to complete its recapitalisation, meaning it might be forced into a public bail-in otherwise.
In parallel, also overnight ratings agency Moody´s lowered its outlook on Italy´s long-term debt from ‘stable’ to ‘negative’, referencing reduced prospects for structural and economic reforms after the constitutional referendum, among other factors.
Indeed, later in the day Governing Council members at the European Central Bank were expected to announce between a six to nine-month extension in their monthly asset purchase programme at the current pace of €80bn a month.
Just as important however, investors would be keen to know its thinking on recent events in Italy and what steps it would support in restoring the health of that country´s financial sector.
The ECB was also set to release its most recent short-term economic forecasts, with its projections for inflation and expectations for the exchange rate likely to be key talking points.
Acting as a backdrop, Chinese exports grew 0.1% year-on-year in November following a drop of 7.5% in October, outpacing forecasts for a drop of 5.0%.
“The pick-up reflects a strengthening in global demand, with recent business surveys suggesting that the global economy is on track to end the year on a strong note. The improvement appears to be broad based, with Chinese exports to the US, EU and other emerging markets all increasing,” said Julian Evans-Pritchard, China economist at Capital Economics.
Capita lets go of deadweight
Dogged by weak growth and high debts, Capita has proposed offloading the majority of its Asset Services division and a small number of other ‘non-core’ businesses in order to focus fully on business process outsourcing. The FTSE 100 company, whose shares have been in freefall since a profit warning in September, also cut its full year guidance for underlying profit before tax to be at least £515m down from its previously lowered range of £535-555m, and said the headwinds affecting the business are expected to produce a similar trading performance in the full-year 2017.
Utility company National Grid is to sell a 61% stake in its gas distribution business to a consortium of investors for about £3.6bn and return £4bn to shareholders. It will retain a 39% minority stake in the new holding company for the business and receive £1.8bn from additional debt financing.
Germany-based travel and tourism provider TUI delivered its full-year results to 30 September on Thursday, with a 12.5% increase in underlying EBITA including Travelopia to €1bn, or 14.5% for continuing operations to €1.03bn. Turnover was down slightly, dipping 1.9% to €17.19bn, though it improved 1.4% at constant currencies. The FTSE 100 firm’s board said it expects to deliver at least 10% growth in underlying EBITA in 2016/17, and extended its previous guidance of at least 10% underlying EBITA CAGR to 2018/19.
