London close: Stocks gain as analysts expect QE expansion by ECB

UK stocks gained on Wednesday as further quantitative easing by the European Central Bank seemed more likely after Eurozone inflation fell short of forecasts.

Eurozone inflation rose 0.1% in the year to November, unchanged from the previous month, according to the 'flash' estimate from Eurostat on Wednesday. Analysts had predicted year-on-year growth of 0.2%, adding pressure on the ECB ahead of its policy decision on Thursday. The ECB is targeting inflation of just below 2%.

ECB President Mario Draghi is expected to announce new measures to counter prolonged low inflation, including an increase in monthly asset purchases, an extension to the quantitative easing programme beyond September 2016 and a cut to the deposit rate.

"November’s weaker-than-expected Eurozone consumer prices figures give a final green light for the ECB to both increase the pace of its asset purchases and cut its deposit rate at tomorrow’s policy meeting," said Jonathan Loynes, chief European economist at Capital Economics.

In the UK, the British Retail Consortium revealed that a drop in British shop prices accelerated in November. Prices declined 2.1% over the 12 months to November, worse than October's 1.8% decrease.

Markit’s construction purchasing managers’ index declined from 58.8 in October to 55.3 in November, comfortably below the 58.5 reading analysts had expected. A reading above 50 signals an expansion while a level below that suggests growth.

Stateside, the private sector created 217,000 jobs in November, according to ADP, better than the previous month’s reading of 196,000 and estimates of 190,000. The data comes ahead of the widely followed non-farm payrolls on Friday.

Meanwhile, Federal Reserve policymaker Dennis Lockhart said the case for raising interest rates this month was “compelling”, although dollar strength was a risk to his outlook.

In a speech in Fort Lauderdale ahead of the Fed’s two-day meeting on 15-16 December, Lockhart said: “The dollar has risen pretty substantially since mid-2014.”

Earlier the Fed’s Lael Brainard said the central bank should go slow in raising interest rates. Speaking at the Stanford Institute for Economic Policy Research, he said there may be confines to the Fed’s ability to tighten monetary policy.

Company-wise, Shire, GlaxoSmithKline and AstraZeneca rallied as the sector got a boost from a note by Morgan Stanley, which double upgraded AZN to ‘overweight’ from ‘underweight’ and said it was among its top picks.

Helped by JP Morgan Cazenove nudging its target price higher to 450p, Merlin Entertainments was on the front foot again following a well-received trading statement on Monday, in which the theme parks group confirmed it was likely to end the year on a stable footing. It said full year profit forecasts were expected to meet lowered expectations despite the continued significant weakness at Alton Towers since the crash on its Smiler ride in June.

On the downside, Meggitt slid as it looked set to be demoted to the FTSE 250 following the latest FTSE 100 quarterly review, the results of which will be announced after the close on Wednesday. Shares in the aerospace and defence engineer tumbled 20% in late October after it cautioned that full year profit would be well below forecasts due to a “marked deterioration” in its end markets.

Morrison Supermarkets was also sitting lower as the London Stock Exchange said the group is likely to be moved from the FTSE 100 to the FTSE 250 as it suffers from a price war.

Greene King jumped after posting a rise in first half pre-tax profit and revenue thanks in part to the integration of Spirit Pub Company.

Moneysupermarket.com was in the red after founder Simon Nixon sold a 5.8% stake in the comparison website, pocketing a gross £98m.

Market Movers

FTSE 100 (UKX) 6,424.81 0.46%
FTSE 250 (MCX) 17,553.75 0.21%
techMARK (TASX) 3,255.63 0.79%

FTSE 100 - Risers

Shire Plc (SHP) 4,755.00p 2.57%
Merlin Entertainments (MERL) 424.50p 2.29%
GlaxoSmithKline (GSK) 1,380.00p 2.15%
International Consolidated Airlines Group SA (CDI) (IAG) 586.50p 1.73%
Unilever (ULVR) 2,874.00p 1.73%
Experian (EXPN) 1,254.00p 1.70%
Diageo (DGE) 1,943.50p 1.62%
Inmarsat (ISAT) 1,138.00p 1.61%
AstraZeneca (AZN) 4,588.00p 1.61%
Smith & Nephew (SN.) 1,144.00p 1.51%

FTSE 100 - Fallers

Meggitt (MGGT) 374.20p -3.31%
Standard Chartered (STAN) 541.60p -2.71%
Anglo American (AAL) 397.15p -2.25%
Rio Tinto (RIO) 2,189.00p -1.15%
Aberdeen Asset Management (ADN) 311.40p -1.08%
3i Group (III) 496.10p -1.08%
Smiths Group (SMIN) 1,022.00p -1.06%
Travis Perkins (TPK) 2,025.00p -1.03%
Burberry Group (BRBY) 1,235.00p -0.96%
Royal Bank of Scotland Group (RBS) 309.40p -0.90%

FTSE 250 - Risers

Greene King (GNK) 961.50p 12.92%
Pace (PIC) 442.60p 9.45%
AA (AA.) 296.70p 6.77%
Greggs (GRG) 1,285.00p 3.30%
Enterprise Inns (ETI) 106.60p 3.29%
Brewin Dolphin Holdings (BRW) 265.70p 3.18%
Virgin Money Holdings (UK) (VM.) 389.20p 2.69%
Ted Baker (TED) 3,388.00p 2.64%
Ocado Group (OCDO) 380.40p 2.56%
Interserve (IRV) 548.00p 2.43%

FTSE 250 - Fallers

Jimmy Choo (CHOO) 130.50p -6.79%
Saga (SAGA) 201.70p -4.95%
Moneysupermarket.com Group (MONY) 312.80p -4.72%
Petra Diamonds Ltd.(DI) (PDL) 69.05p -4.43%
Evraz (EVR) 80.20p -4.01%
Rathbone Brothers (RAT) 2,187.00p -3.53%
Premier Oil (PMO) 66.90p -3.46%
Millennium & Copthorne Hotels (MLC) 473.50p -3.17%
IMI (IMI) 920.50p -3.05%
Senior (SNR) 241.60p -2.82%