Stocks slide into the close on the eve of the European Central Bank meeting

Equity markets are giving up their gains ahead of the much awaited ECB meeting tomorrow, where traders are anticipating extra easing.

Data charts
Source: Bloomberg

Traders are cautiously optimistic that Mario Draghi will deliver additional easing tomorrow, but the mood is far from being very bullish. It is slightly concerning that stocks sold-off towards the end of the trading session, especially when they suffered losses on Monday and Tuesday.

It is fair to say that the risk appetite isn’t there as defensive stocks like Reckitt Benckiser, AstraZeneca, GlaxoSmithKline and Imperial Brands were in demand while Anglo American, BHP Billiton and Rio Tinto fell today. The mining sector endured severe losses yesterday and the fact that its small bounce this morning turned into additional losses by this afternoon, underlines how risk adverse investors are.

Home builders like Berkeley Group, Persimmon and Taylor Wimpey were driven higher by chatter of short covering. 4% of Berkeley’s shares are out on loan to short sellers, and the new stamp duty rules will come into play next month. Concerns that the London property market is overheated has prompted some hedge funds to take a bearish view on the company and the wider sector.

The divergence between the solid fundamentals and the weakening share price of the UK house builders suggests that investors don’t see much upside to the sector.

While the FTSE 100 holds above 6100 its outlook will be positive and an edging lower may entice buyers ahead of the ECB meeting tomorrow. If the DAX remains above 9676, a pusher higher is possible and like its London equivalent, pullbacks may provide buying opportunities.

The strength of the oil market ensured that Chevron and Exxon rose in New York, but it is mostly tech stocks like IBM, Cisco Systems, Intel and Microsoft that are fueling the rally in the US.

In the US 500, the best performing sectors are the software and services industry, consumer staples and the food, beverage and tobacco industry, so it is clear that US investors are a touch on the defensive side too. 83% of the components of Wall Street are above their 10-day and 50-day simple moving average (SMA) while it is only 66% and 75% respectively for the US 500.

This tells us that that traders who are bullish are buying the biggest stocks, which suggests that risk appetite is only there for the blue chip names. Wall Street has been range-bound recently, and a drift back to 16,900 could trigger some buying and the bulls will be looking to crack 17,100. While the US 500 holds above 1977 another attempt on 2000 can’t be ruled out. 

FTSE risers and fallers (as of 4.35pm)

Company % change Index points
Royal Dutch Shell A +1.84 +5
Prudential +2.9 +3.83
Royal Dutch Shell B +1.53 +3.72
Reckitt Benckiser +1.67 +2.67
British American Tobacco +0.81 +2.36


Company % change Index points
Barclays -2.21 -2.48
Vodafone -1.03 -2.33
Lloyds -1.22 -2.14
Burberry -6.7 -1.69
BT Group -0.79 -1.19

The night ahead

Economic data:

8pm – Reserve Bank of New Zealand interest rate decision and statement. Rates are anticipated to remain at 2.5%.

The day ahead

Economic data:

1.30am - China CPI (February) and PPI (February): CPI is tipped to rise from 0.5% to 0.6% on a MoM basis and increase to 1.9% from 1.8% on a YoY basis. PPI is forecast to increase from -5.3% to -4.9% on a YoY basis

12.45pm – ECB interest rate decision: the forecast is for the base rate to remain at 0.05% and the deposit facility rate to be cut from -0.3% to -0.4%. The stimulus package is expected to be increased from €60 billion per month to €70 billion per month.

1.30pm – US jobless claims: jobless claims is anticipated to fall by 2,000 to 276,000.

Corporate reporting:

UK: AvivaCineworld Group, Morrison, AMEC Foster Wheeler, Savills,Michael Page Group, Fenner Home Retail Group

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