Stocks respond well to Draghi plan

STOCK MARKETS rose yesterday as investors responded positively to the plan unveiled by European Central Bank president Mario Draghi for unlimited bond-buying programme to ease borrowing rates for euro zone members and stabilise the currency bloc’s crisis.

The markets had expected only limited details of the ECB’s plans to stem the crisis but Draghi’s comments that the buy-buying plan would provide a “fully effective backstop” and that the euro was “irreversible” buoyed investors.

Earlier rumours had lived up to expectations and the news from Frankfurt raised share prices with the major financial institutions leading increases across markets.

DUBLIN

THE ISEQ gained 1.7 per cent as the rising tide across Europe pushed Irish share prices higher.

The yield, or interest rate, on the benchmark Irish government 2020 bond fell six basis points to 5.83 per cent, though market sources questioned whether Ireland would avail of the ECB’s bond-buying option, despite it being available to the Government.

The index was up about half a per cent prior to the monthly ECB press conference but climbed after Draghi began outlining the ECB’s plans in his afternoon speech.

Bank of Ireland followed the performance of other euro area banks and posted the biggest rise on the Irish market, increasing 6.9 per cent or just over half a cent to 9.3 cent a share, though still below last year’s rights issue 10-cent price.

Building materials and DIY group Grafton rose 5.6 per cent or 17.5 cent to €3.32 after the British government announced plans to allow homeowners extend their properties by up to 30 feet without planning permission as part of measures to boost its building sector.

Packaging group Smurfit Kappa gained 3.6 per cent, again primarily on the positive news from Frankfurt as most of the gains on the company’s latest debt refinancing appear to have been taken before the ECB’s announcement.

CRH, the building materials group and the largest share on the market, representing about a third of the index, rose 2.8 per cent or 39 cent to €14.44 a share, again on the good macroeoconomic news.

Aer Lingus fell 0.34 per cent, despite the airline publishing figures showing that passenger numbers in August increased 2 per cent on the same month last year.

Independent News & Media fell 4.4 per cent to 17 cent a share but on very small trading volumes.

LONDON

BRITISH SHARE prices rose the most in a month as Lloyds Banking Group and Vedanta Resources led banks and mining companies higher, each increasing by more than 5 per cent.

Whitbread jumped 5.3 per cent after the owner of Premier Inn budget hotels reported higher sales, while William Morrison Supermarkets added 4.3 per cent after the supermarket chain’s earnings beat analyst estimates.

The FTSE 100 Index surged 2.1 per cent in its biggest gain since August 3rd.

The gauge has climbed 9.8 per cent from this year’s low on June 1st, boosted by expectations that central banks will do more to support growth.

“The markets clearly liked what Mario Draghi had to say as he has effectively placed the central bank in the position of being the lender of last resort,” said analyst Angus Campbell Capital Spreads in London. “The big question is will it be enough to draw a line under the crisis.”

The Bank of England kept its bond-purchase target at £375 billion (€473 billion) as forecast.

Lloyds, the second biggest government-aided UK bank, gained 6.7 per cent. Barclays lagged it with a 6.1 per cent gain followed by RBS with a 4.8 per cent increase.

EUROPE

EUROPEAN STOCKS also rallied the most in a month after Draghi’s announcement. UniCredit and Société Générale led gains in banks, climbing more than 7 per cent. The Stoxx Europe 600 Index surged 2.3 per cent at the close, the biggest increase since August 3rd.

National benchmark indexes climbed in all 18 western-European markets. Germany’s Dax rose 2.9 per cent and France’s Cac-40 was up 3.1 per cent.

The euro rose 0.2 per cent to $1.2623 against the dollar, but it had weakened earlier in the day after the ECB forecast a deeper economic contraction this year.

US

THE S&P 500 stock market index surged to its highest level in more than four years as investors lauded the ECB’s plans and there were signed of improvement in the US employment figures.

Companies increased staff numbers last month at the fastest pace in five months, while a gauge of employment in the service sector also improved.

Another report showed new claims for jobless benefits fell last week to the lowest level in a month.

– (Additional reporting: Reuters/Bloomberg)