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London open: Stocks gain ahead of ECB policy announcement
UK stocks gained on Thursday as Chinese inflation grew more than anticipated and traders braced the European Central Bank’s latest policy announcement.
China’s consumer price index rose 2.3% in February from a year ago, beating analysts’ forecasts for a 1.8% increase in line with the previous month’s growth. The key driver was a rise in food price inflation, supported by unusually colder weather and demand for the Chinese New Year celebrations.
“Looking ahead, we expect consumer price inflation to fall back soon as the seasonal pressures on food prices subside,” according to Julian Evans-Pritchard, China economist at Capital Economics.
“Stepping back though, inflation does look set to edge higher this year as the sharp falls in the price of oil and other commodities over the past year drop out of the base for comparison and looser monetary and fiscal policy help to stoke broader domestic price pressures. ”
Capital Economics expects CPI to increase 2.5% year-on-year this year, which would still be below the government’s annual target of 3% set at the recent opening of the National People’s Congress.
The attention now turns to the central bank’s policy decision at 1245 GMT, followed by a press conference with President Mario Draghi at 1330 GMT.
The ECB is expected to announce a 10 basis point cut to the deposit facility rate, a six-month extension to the quantitative easing programme and a €10bn increase to the pace of monthly asset purchases.
The ECB has been under mounting pressure to take further action to address prolonged low, a stagnant recovery in the euro area and a global economic slowdown.
“As the ECB looks set to ease its monetary policy even further today, the discussion about what central banks can and cannot achieve is veering into ever wilder directions,” said Holger Schmieding, analyst at Berenberg.
“Some pundits claim that central banks have lost much of their erstwhile power; others accuse them of expropriating hapless savers. Some observers even suggest that it would take a tighter rather than looser policy to support demand. To assess these claims, we need to recall some basic points about monetary policy.”
Meanwhile, oil prices reversed gains in the previous session after government data showed US crude stockpiles rose in line with analysts’ expectations. Crude stocks increased 3.9m barrels to a total 521.9m barrels in the week to 4 March as predicted, according to the Energy Information Administration.
Brent crude fell 0.95% to $40.68 per barrel and West Texas Intermediate dropped 0.60% to $38.06 per barrel at 0906 GMT.
In company news, shares in Morrison Supermarkets declined after the company said annual profits fell more than a quarter and like-for-like sales dropped 2.0%.
Aviva rallied after revealing a 20% jump in annual operating profits, supported by the acquisition of Friends Life.
Home Retail edged higher as it reported an improvement in sales at its Argos stores in the final eight-week trading period for the financial year ended 27 February.
Savills was on the front foot as the real estate agent said full year pre-tax profits were up 16% to £98.6m, underpinned by the strength of its commercial market positions and resilience of its residential businesses.
Hiscox slumped as it sold the Hong Kong division of its Asian business to Well Link Group for an undisclosed fee.
