London close: Shares shoot higher after ECB kicks hikes into long grass
London stocks climbed back to their feet on Thursday afternoon along with continental peers after the European Central Bank said it was unlikely to raise rates before autumn next year.
The FTSE 100 finished up 0.8% at 7,765.79, reversing course from an earlier decline of 0.7% as the mining sector recovered and investors digested better-than-expected UK retail sales data and a hawkish Fed update overnight.
While the ECB said it would end quantitative easing by December, which was largely expected to be announced next month, the Governing Council surprised with a policy statement stating that interest rates would "remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path."
This sent the euro tumbling against the dollar as comments from the Federal Reserve indicted that the US will have had a quartet of interest rates hikes by the time its European counterpart pulls the trigger. An initial bounce in the euro crumbled spectacularly, with EURUSD hitting the lowest level seen this month.
"The hawks finally got their end-date for QE, while the doves still have their open door for more if needed," said economists at ING. "Nicely done."
Market analyst Joshua Mahony at IG added: "Amid expectations of a more hawkish ECB stance, Mario Draghi has once again managed to send the euro lower despite the committee setting out the end of their QE stimulus. With the euro and pound both in decline this afternoon, we are seeing significant outperformance in European stock markets over their US peers.
"One of Draghi’s standout abilities in his role as the governor of the ECB has been to manage to markets despite an increasingly hawkish message, and this has come home to roost once again today as the euro plummets despite Draghi laying out the end of QE."
On Friday morning, the pound had received a boost as data from the Office for National Statistics showed that UK retail sales rose more than expected in May thanks to boosts from warmer weather, the royal wedding and the FA Cup.
Retail sales rose 1.3% month-over-month in May, beating the 0.5% the month before and lower than the 2.4% expected. But compared to last year, retail sales were up 3.9%, ahead of the 2.4% consensus estimate. Excluding fuel, sales were up 1.3% on the month versus the 0.3% expected and up 4.4% on the year compared to 2.5% forecast.
Overall growth was boosted by sharp increases in sales of clothing, sporting goods and garden items, up 1.7%, 3.3% and 6.2% month-to-month, respectively.
The increasing online shift was highlighted as the proportion of online spending in clothing stores has grown at a much faster rate in the last 14 months, accelerating to 17.6% from 14.7% in March 2017.
"The jump in retail sales in May has all the hallmarks of a weather-related blip, rather than a sustainable pick-up in spending," said economist Sam Tombs at Pantheon Macroeconomics, noting that average temperatures were 1.8 degrees above their 1970-to-2016 May average, persuading households to purchase items that they forewent in February and March when the weather was unusually cold.
Among individual stocks, Rolls-Royce was a high riser after it announced 4,600 job cuts - mainly in the UK - to save £400m a year in the latest round of restructuring under chief executive Warren East. CMC Markets analyst David Madden said: "The company will host an investor day tomorrow, and traders will be listening out for how the company plans to generate profit after 2020. The firm derives a large amount of its revenue from after-sales services, and this will be in focus."
GlaxoSmithKline was on the rise after it said that its two-drug treatment for HIV met its main goal in late-stage studies. Also in the news, Mylan said the US Food and Drug Administration will reject its generic version of Glaxo's blockbuster asthma drug Advair after finding "minor deficiencies".
Aveva surged after its full-year earnings per share came in well ahead of expectations, while Sky gained as Comcast made a $65bn bid to buy 21st Century Fox's entertainment assets overnight, trumping an earlier takeover agreed with Disney for just over $52bn.
Safestore turned higher following the release of broadly in-line interim results.
Mining stocks, having been under pressure following the release of disappointing Chinese retail sales and investment data, mostly regained ground late in the session, with Rio Tinto, BHP and Glencore making it back into positive territory, but Antofagasta and Anglo American still weaker. Anglo retreated as it agreed to sell a stake in its Quellaveco copper project in Peru to Mitsubishi Corporation for $600m in order to get moving on the project.
Unilever was the standout loser after the company said at a conference that it was unlikely to remain in the FTSE indices after its move to a single headquarters in the Netherlands. Also the consumer goods giant said sales growth in the first half is likely to be below the full-year forecast range of 3% to 5%.
Consumer products peddler PZ Cussons was firmly in the red after saying in a trading update that pre-tax profit for the full year was likely to be at the lower end of the £80m to £85m range it announced in March.
Pearson was lower on the back of a Barclays downgrade, while Relx, formerly Reed Elsevier, was in the red as UBS downgraded on valuation grounds.
Rathbone Brothers edged down after announcing the acquisition of Scotland's largest independent wealth manager, Speirs & Jeffrey, for an initial cash and shares consideration of £104m.
Persimmon, WPP, 3i Group, Severn Trent, Mediclinic, NMC Health, UBM, Electrocomponents, Pets at Home, Shaftesbury and Stobart were among the companies whose stock went ex-dividend.
Market Movers
FTSE 100 (UKX) 7,765.79 0.81%
FTSE 250 (MCX) 21,324.02 0.43%
techMARK (TASX) 3,603.30 1.39%
FTSE 100 - Risers
Rolls-Royce Holdings (RR.) 882.80p 6.54%
Smurfit Kappa Group (SKG) 3,052.00p 3.25%
Centrica (CNA) 153.25p 2.99%
BT Group (BT.A) 214.10p 2.93%
Royal Mail (RMG) 505.20p 2.64%
Reckitt Benckiser Group (RB.) 6,150.00p 2.35%
GlaxoSmithKline (GSK) 1,580.20p 2.27%
BP (BP.) 585.50p 2.13%
Sainsbury (J) (SBRY) 314.70p 2.11%
Informa (INF) 834.60p 1.81%
FTSE 100 - Fallers
Persimmon (PSN) 2,727.00p -2.82%
Unilever (ULVR) 4,036.00p -2.81%
Relx plc (REL) 1,609.50p -2.75%
Severn Trent (SVT) 1,880.00p -2.64%
Antofagasta (ANTO) 1,067.50p -1.53%
Pearson (PSON) 883.60p -1.45%
Evraz (EVR) 551.40p -0.93%
Mondi (MNDI) 2,087.00p -0.86%
Sage Group (SGE) 680.40p -0.73%
G4S (GFS) 281.30p -0.71%
FTSE 250 - Risers
Aveva Group (AVV) 2,836.00p 12.01%
Rathbone Brothers (RAT) 2,630.00p 5.12%
Alfa Financial Software Holdings (ALFA) 200.00p 4.60%
Entertainment One Limited (ETO) 353.20p 4.13%
Dixons Carphone (DC.) 200.10p 4.06%
Charter Court Financial Services Group (CCFS) 347.00p 3.64%
Safestore Holdings (SAFE) 577.00p 3.59%
Bank of Georgia Group (BGEO) 1,947.00p 3.56%
Computacenter (CCC) 1,478.00p 3.36%
Ultra Electronics Holdings (ULE) 1,701.00p 3.28%
FTSE 250 - Fallers
PZ Cussons (PZC) 220.20p -5.41%
IP Group (IPO) 135.20p -3.43%
Kaz Minerals (KAZ) 957.60p -3.33%
TalkTalk Telecom Group (TALK) 120.30p -2.83%
Templeton Emerging Markets Inv Trust (TEM) 723.00p -2.56%
Pets at Home Group (PETS) 123.06p -2.54%
RHI Magnesita N.V. (DI) (RHIM) 4,776.00p -2.41%
Woodford Patient Capital Trust (WPCT) 76.00p -2.19%
Assura (AGR) 56.70p -2.07%
Senior (SNR) 311.80p -1.89%