LONDON (ShareCast) - 1630:Close Today saw the Markit July service sector purchasing managers index fell to 51 points, from 51.3 in June against a consensus estimate of 51.5. Meanwhile, in its latest quarterly forecasts, the National Institute for Economic and Social Research (NIESR) lowered its growth forecasts for the UK economy in 2012 and 2013. It now sees economic output contracting at an 0.5% rate this year instead of holding steady as had previously been estimated. For next year its estimate comes down to 1.3% from 2.0% before. In parallel, today´s latest employment data Stateside has tempered expectations for another round of quantitative easing.
Yet the real news on Friday came from the Continent. Investors seemingly changed tack and took a positive view of Draghi´s comments yesterday evening. Short-term periphery bond yields fell violently, with Spanish 2 year bond yields down by 90 basis points at one point in the day. The Milan and Madrid benchmark equity indices both rose by 6%. The single currency also bounced back. FTSE 100 closed up 125 at 5,787.
1529: Some members of German Chancellor Angela Merkels coalition parties are being cited as having signaled that they wont stand in the way of the ECB´s plan to buy government bonds. Kazhakmys and Vedanta continue to track prices of Dr.Copper (the only metal with a PhD in Macroeconomics) higher. Prudential has joined sector peer Aviva on the leaderboard. Barclays has replaced RBS at the head of the gains amongst bank shares. Spain´s PM is being described by some as having left the door open to an aid request. For once the rumours seem to have actually been borne out, even if only partially. FTSE 100 up 128 to 5,790.
1446: The Footsie is nearly trading two per cent higher, up 109 points at 5,771, on the back of the US jobs data which smashed expectations. Unsurprisingly, the figures boosted US stock markets higher after the opening bell with the Dow Jones up over 200 points in the opening hour. US payroll growth was the strongest since February and should 'partially ease the concerns of policymakers', according to analysts at Barclays Research. Mining stocks in London are leading the risers now on the back of increased risk appetite, with Kazakhmys, Vedanta and ENRC among the best performers.
1330: US non-farm payrolls rose by 163,000 in July. The unemployment rate has edged up by a tenth of a percentage point, to 8.3 per cent (consensus: 8.2 per cent). Average hourly earnings rose by 0.1 per cent month-on-month (consensus: 0.2 per cent). There is quite a bit of market chatter following the data to the effect that the possibility of seeing a third round of quantitative easing has now come off the table.
1317: Stocks are near their best levels of the day now, just ahead of this afternoon´s employment report Stateside (Consensus: 100,000). Over in Spain, PM Rajoy has made no reference to an imminent petition for a bail-out. Miners are moving up the leaderboard with Kazahkmys and Antofagasta in the lead. Shares of Aggreko are also wanted. FTSE 100 up 83 to 5,745.
1155: Just what exactly are short-term bonds? 2 years? 1 year perhaps? 3 years even? As some market chatter would have it, analysts seem to be at a little bit of a loss over what exactly to make of Draghi´s remarks yesterday. For our part, we would add that in the economic literature short-term usually refers to up to 2 years, sometimes even up to 3. Sheer queerness aside -which is always of interest in and of itself- it is not impossible that such doubts could temper the buying at some tenors.
1133: Rumours are apparently making the rounds that the European Central Bank may hold some sort of extraordinary press conference. As well, and in Spain, www.Bolsamania.com reports on speculation that the country´s Prime Minister may give a speech following today´s Council of Ministers. That would be the first time that he has done so since coming to power. Some investors may therefore be "joining the dots" and reaching the conclusion that Spain will ask for aid today.
1100: Generally higher equity markets aside shares of Aviva may also benefit today from a positive read across from results released by continental peers Allianz and Axa. Investec has retained its buy recommendation on shares of Aviva and Credit Suisse outperform. Insurers are the second best performing sector now on the DJ Stoxx 600, behind banks. Falling periphery bond yields may also be lending a hand.
1038: Spanish and Italian 2 year bond yields are correcting precipitously. The former are now crashing by 44 basis points (to 4.39 per cent) while their Italian peers are off by 52 basis points to 3.22 per cent. 10 year bond yields for both countries also both seem to be gravitating lower now. Economists at several large banks, incuding Goldman Sachs, have issued positive notes on Draghi´s decision yesterday; that after initial market commentary was somewhat mixed. FTSE 100 up 65 to 5,728.
1031: The FTSE 100 is trading 68 points higher at 5,730, its intraday high, in spite of the services PMI data coming in below estimates. In contrast, Eurozone retail sales volumes rose 0.1 per cent in June (down 1.2 per cent year-on-year), according to Eurostat, better than the 0.1 per cent fall expected (minus 1.8 per cent year-on-year forecast). RBS is now gaining 4.7 per cent, leading stocks higher in London after its first-half results. Investec said this morning that it 'remains a mystery as to why nationalisation might be considered practical or desirable' as the bank is 'more than capable of responding to any uptick in credit-worth demand for finance'. Just nine stocks on the blue-chip index are currently in the red.
0930: The Markit UK Services PMI has come in at 51 points, versus 51.3 in June (Consensus: 51.5). As the market digests the typically lengthy results statement from RBS the share price tends ever higher. The part-nationalised lender is joined on the up by sector peers Barclays and Standard Chartered. Among the mid-caps, satellite operator Inmarsat's assertion that its core maritime satellite division has returned to growth has lit a fire under its share price, while support services firm Cape recoups some of yesterday's heavy losses, which were sparked by a profit warning. FTSE 100 is up 48 at 5,710.
0818: After yesterday's Draghi-inspired afternoon swoon, London is clawing back yesterday's losses. RBS edges higher after announcing half-year results which showed impairment charges remain on a downward path, though provisions for the cost of buying back the bank's issued debt soared. Airline IAG loses altitude after conceding it will not hit its full-year profit target. FTSE 100 is up 25 at 5,687.