Investors betting on decisive eurozone action from the European Central Bank President, Mario Draghi, were sorely disappointed on Thursday.
Investors had generally expected the ECB to announce concrete, drastic plans to help the struggling eurozone after Draghi announced last week that he would “do whatever it takes to preserve the euro.” In particular, many investors were hoping that the ECB would outline how it would help tame the spiking borrowing costs of highly-indebted countries such as Spain and Italy. But Draghi’s speech on Thursday afternoon did not reveal any bold new measures after his central bank left the main eurozone interest rate unchanged at a record low of 0.75%.
London’s benchmark FTSE 100 index fell by roughly 100 points in the early afternoon as Draghi made his public speech. The FTSE 250 index also experienced a sharp drop at the same time. The FTSE 100 is now closed at 5,662, after sinking by 51 points, or 0.9%. The FTSE 250 is closed at 11,077, after dropping by 110 points, or 1%.
“Draghi’s press conference had a much more muted tone relative to his remarks in London last week when he passionately said the eurozone was here to stay and that the ECB would do all in its "mandate" to ensure the euro survives,” said Kathleen Brooks, research director at GAIN Capital. “It appears that Draghi’s comments in London (last week) meant that the Bank won’t protect the eurozone right now, instead the ECB will avert disaster only when the euro looks like it is under severe attack. Draghi ... should have been more careful (last week) if he wanted to avoid a “disappointing” market reaction after his press conference.”
Other central banks also announced policy and rate-setting decisions in the last 24 hours: the Bank of England left its monetary policy unchanged at a record low level of 0.5%, and the US Federal Reserve also left its policy unchanged without announcing any new stimulus measures for the economy.
“Further policy action from the Bank (of England) will likely be saved until later in 2012 and only if the threats to domestic economic and financial conditions from the eurozone and the broader global slowdown become apparent,” explained Peter Hensman, global strategist at Newton Investment Management.
Smith & Nephew and Schroders Defy the Market Slide
While many London-traded stocks experienced losses on Thursday as the overall market declined, there were two particular companies that saw their shares emerge from the market gloom and head higher.
Smith & Nephew (SN.) got a boost after the medical device manufacturer announced it was increasing its dividend, making it a more desirable option for income-seeking investors.
“Smith & Nephew's 50% dividend increase is big news,” says Morningstar analyst Julie Stralow. “As we've stated in the past, orthopedic firms like Smith & Nephew have many levers to pull to reward shareholders for their patience during this weak growth phase. We're happy to see the firm pull this lever after reaching a net cash position for the first time since purchasing Plus in 2007.”
Shares in Schroders also pushed higher after the fund management firm announced that clients were pouring money into its funds in the first half of this year.
A Schroders press release states: “In this challenging environment we were able to generate net new business of £2.7 billion in the first half of 2012 because of the diversification of our business across a broad range of asset classes, client segments and geographies.”
These net inflows were much higher than equity analyst had expected, however, Shore Capital analysts Owen Jones and Gary Greenwood point out that the drop in Schroders’ earnings for the period was a disappointment.
