U.K. Stocks Fall to Six-Week Low After Draghi Comments
U.K. stocks declined, extending a six-week low for the FTSE 100 Index, after European Central Bank President Mario Draghi cooled speculation of further imminent stimulus measures.
Barclays Plc (BARC) led a selloff by U.K. lenders as Sumitomo Mitsui Financial Group Inc. sold half of its stake in the bank. EasyJet Plc (EZJ) lost 4.1 percent as the carrier reported passenger numbers for May. Johnson Matthey Plc (JMAT) rallied 6.3 percent after posting pretax profit that beat analysts’ estimates.
The FTSE 100 declined 83.2 points, or 1.3 percent, to 6,336.11 at the close in London, as both the ECB and the Bank of England left their benchmark interest rates unchanged at record lows today. The broader FTSE All-Share Index fell 1.2 percent today, while Ireland’s ISEQ Index slid 1.3 percent.
“Draghi was expected to be dovish, and while he still intends to do whatever it takes, he doesn’t seem to see the need for action at the moment,” said Nick Xanders, equity strategist at BTIG Ltd. in London. “The market is obviously finding that disappointing. Bond yields are spiking. Equities are not happy about that.”
Stocks and bonds declined across Europe as Draghi said at a press conference in Frankfurt that the combined economy of the euro area will return to growth by the end of the year, removing the need for policy makers to provide additional stimulus. U.K., German and French bonds fell, pushing the yields on the three countries’ benchmark securities higher.
“We had an ample discussion of the various measures, non-standard measures that could be utilized to repair the transmission policy,” Draghi told reporters in Frankfurt after the central bank’s meeting. “We see no reason to act on all these fronts. These are measures we keep on the shelf.”
The ECB’s Governing Council left its main refinancing rate at 0.5 percent at the end of today’s meeting, as predicted by the majority of economists in a Bloomberg News survey. The central bank lowered interest rates from 0.75 percent in May.
In the U.K., the Bank of England held its last policy meeting with Mervyn King as governor today. The central bank also left its asset-purchase target at 375 billion pounds ($583 billion), as predicted by economists in Bloomberg News survey.
Barclays fell 4.1 percent to 303.3 pence, for the biggest decline on the FTSE 100. (UKX) Sumitomo Mitsui sold 84.5 million shares in the U.K.’s second-largest lender at 308.5 pence a piece. The transaction amounted to a 0.66 percent stake in Barclays. Sumitomo Mitsui still holds 0.66 percent.
HSBC Holdings Plc (HSBA) slid 1.8 percent to 700 pence and Standard Chartered Plc lost 3.3 percent to 1,448 pence. Royal Bank of Scotland Group Plc (RBS) fell 3.5 percent to 316.9 pence as Chief Executive Officer Stephen Hester told the Irish Independent that the lender has no plans to sell Ulster Bank.
EasyJet dropped 4.1 percent to 1,184 pence as Europe’s second-biggest discount carrier reported that it flew 5.61 million passengers in May, compared with 5.42 million a year earlier. The stock has still gained 55 percent so far this year.
Thomas Cook Group Plc (TCG) dropped 7.7 percent to 116.1 pence. The tour operator admitted new shares to its listing this week. The company last month announced plans to raise 425 million pounds in a rights offer and share placement.
Johnson Matthey surged 6.3 percent to 2,750 pence after the maker of catalysts for vehicles reported underlying pretax profit of 389.2 million pounds for the year ending on March 31. That beat the average analyst estimate by almost 10 million pounds. Bank of America Corp. raised its recommendation for the shares to buy from neutral following the results.
RSA Insurance Group Plc (RSA) gained 0.8 percent to 114.1 pence after Morgan Stanley upgraded the insurer to overweight from underweight, saying the share price will benefit from a stronger prospective U.K. performance. The stock has declined 9.2 percent so far this year, while the FTSE 350 Insurance Index has rallied 10 percent.
Homeserve Plc (HSV) climbed 8.1 percent to 265.6 pence. Liberum Capital said the company may attract private-equity buyers after reporting its full-year results. The company may soon complete its discussions with the financial-services regulator about inappropriate sales practices.
“The combination of these two things makes Homeserve more attractive to a private-equity buyer, who would value the relative resilience of the U.K. and the growth of overseas,” Liberum’s Joe Brent wrote in a report to clients.
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