In Europe: Draghi pledge boosts European shares

26 July 2012


Take it as you like, but we’ve seen this before…indications of support to debt-stricken countries, followed by worries of default.

European shares lurched higher on Thursday, halting a four-day drop, as comments from European Central Bank President Mario Draghi about protecting the euro cheered investors already hoping for more stimulus measures from the U.S. Federal Reserve.

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” Draghi told an investment conference in London.

The FTSEurofirst 300 had risen 1.4 percent to 1,032.30 by 1124 GMT, having spent much of the morning oscillating around opening levels, albeit in thin trading volumes, at 44 percent of the 90-day daily average.

Some traders were doubtful about the sustainability of the market strength given the announcement’s scant detail.

“It should be good news for the markets temporarily… Ultimately protection of the euro is what everybody’s worried about. What does that mean though? Because there is a lack of content, it’s difficult to read,” Yusuf Heusen, sales trader at IG Index, said.

The rebound came after a steep sell-off in recent sessions, driven by concerns over the sustainability of Spain’s finances.

Expectations of further U.S. monetary stimulus also helped buoy market sentiment, with a series of bleak U.S. macro data fuelling hopes that the Federal Reserve might unveil a new round of quantitative easing.

“The economic newsflow hasn’t been that great. The earnings have been okay – but the expectations going into the reporting season were very very low… I think the thing that the markets now hope to see is more monetary stimulus, particularly from the Fed,” Mike Lenhoff, chief strategist at Brewin Dolphin, said.

“There is a risk that the markets could be disappointed if the Fed fails to deliver… next Tuesday (when it begins its two-day rate setting meeting). I feel that they are going to deliver – but it may not be next Tuesday.”

Thursday’s European corporate earnings releases were a mixed bag.

British aero engine maker Rolls-Royce was among the top risers on the FTSEurofirst 300 index, ahead 6.8 percent, after it unveiled a better-than-expected 7 percent rise in first-half profit, driven by airlines’ need to renew ageing fleets with more fuel-efficient planes.

Unilever was another good gainer, ahead 6.1 percent, after strong emerging markets helped the Anglo-Dutch consumer goods giant avoid issuing profit warnings, as two of its main rivals have, although it did warn of tougher times ahead.

Heavyweight UK energy stock Royal Dutch Shell, however, was left nursing a fall of 2.7 percent after its second-quarter earnings lagged expectations.

Volume in the shares was nearly one and a half times its 90-day daily average.

Weaker prices for oil worldwide and for gas in North America saw Shell, the second largest of the western world oil “majors” behind Exxon Mobil, report a fall in second-quarter earnings to around $6 billion from $8 billion a year ago on a current cost of supply basis. The result undershot analysts’ predictions of around $6.3 billion.

Exxon Mobil reports earnings later on Thursday.

The European earnings season is about a quarter of the way through, with 58 percent of the STOXX 600 companies reporting results so far having met or beaten forecasts.

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