London close: Markets tank as Draghi dampens sentiment

2nd Aug 2012 16:48

- Draghi fails to give markets a boost- BoE maintains rates and QE- RBS leads the downside on one-charges, nationalisation rumoursEquity markets across Europe tanked on Thursday afternoon in spite of a positive start, after the European Central Bank (ECB) dashed hopes of immediate action to stem the crisis.One week after ECB President Mario Draghi excited investors by saying that the Bank would do "whatever it takes to preserve the euro", he explained that while it is ready to intervene in the bond markets (to bring down elevated bond spreads), this is subject to a number of conditions that Eurozone members must adhere to first."In many ways his comments today go against his statement last week. What he said last week was they'll do whatever it takes, today it was more like they'll do whatever the Bundesbank allows them to," said analyst Craig Erlam from Alpari.For their part, analysts at Morgan Stanley had this to say: "By highlighting potential downside risks to growth and inflation on the back of market tensions and heightened uncertainty, the Governing Council opened the door for a rate cut in September, we think. "As we had feared, the ECB did not announce any additional action today. Instead it firmly kicked the ball into the governments' camp by saying that it was ready to conduct open market operations once the EFSF/ESM have been activated on the request of the country aiming to secure support."Spanish 10-year bond yields surged 45.8 basis points (bp) to 7.19% after having eased over the past week, while the Italian equivalent jumped 39.6bp to 6.327%.Meanwhile, the ECB left its interest rate on the main refinancing operations and the rates on the marginal lending facility and the deposit facility unchanged at 0.75%, 1.50% and 0.00%, respectively.Nevertheless, the Footsie came off its intraday low shortly afterwards on the back of some solid economic data from the US. Initial jobless claims edged slightly higher last week to 365,000, but that was slightly below the 370,000 expected by the consensus. Meanwhile, the ISM manufacturing purchasing managers' index came in at 55.2, well ahead of last month's 49.7.At midday, the Bank of England's Monetary Policy Committee (MPC) maintained its Bank Rate at 0.5% and its asset purchase programme at £375bn today. The decisions were widely expected by economists in spite of the BoE hinting at a potential rate cut at its last meeting. FTSE 100: Banks and miners tank as investors flee from riskWith the ECB disappointing the markets which had arguably already priced in some sort of immediate action, investors took profits from 'risker' assets such as banking and mining stocks. Royal Bank of Scotland (RBS) led the downside on the Footsie on the back of reports that it is to take a £300m charge in its first-half results tomorrow owing to PPI redress and mis-selling compensation. Also weighing on the shares were rumours that the government is considering a full nationalisation of the bank (it already owns 83%) in an effort to kick start lending to businesses. Sector peers Barclays and Lloyds were also firmly out of favour.Meanwhile, mining groups Vedanta, Antofagasta and Kazakhmys were sold off.Medical devices specialist Smith & Nephew rose despite reporting a slight decline in second-quarter trading profit and revenue, as it whacked up its dividend, embarking on a progressive dividend policy on the back of the success of its recent restructuring. Asset manager Schroders advanced after reporting an increase in assets under management over the first half; however, profits slipped year-on-year. FTSE 250: Spirent and Ophir provide a drag Communications technology firm Spirent Communications was heavy faller after it cautioned that overall growth in the second half may reduce to mid- to low-single digit increase amid ongoing macro-economic uncertainty. ??High-flying Ophir Energy also disappointed the market as it revealed its gas discovery at the Papa-1 well off the coast of Tanzania is likely to contain lower recoverable resources than it had hoped for. ??Leading the upside was industrial property group SEGRO after saying that pre-tax profits gained 5.3% in the first half despite net rental income falling by 3.4%. The firm also reported today that it has completed the sale of a portfolio of 10 non-core UK industrial estates for £110m. FTSE 100 - RisersSmith & Nephew (SN.) 675.00p +2.35%British American Tobacco (BATS) 3,467.00p +0.78%Schroders (SDR) 1,302.00p +0.77%National Grid (NG.) 669.50p +0.60%Imperial Tobacco Group (IMT) 2,510.00p +0.52%Tate & Lyle (TATE) 665.00p +0.45%Next (NXT) 3,441.00p +0.41%Randgold Resources Ltd. (RRS) 5,700.00p +0.35%Burberry Group (BRBY) 1,262.00p +0.32%BP (BP.) 429.25p +0.28%FTSE 100 - FallersVedanta Resources (VED) 901.50p -7.11%Antofagasta (ANTO) 1,041.00p -5.19%Royal Bank of Scotland Group (RBS) 204.50p -5.06%Aviva (AV.) 285.20p -4.71%Kazakhmys (KAZ) 679.00p -4.50%Lloyds Banking Group (LLOY) 29.39p -4.27%GKN (GKN) 203.00p -4.02%Eurasian Natural Resources Corp. (ENRC) 373.30p -3.99%Evraz (EVR) 229.30p -3.66%IMI (IMI) 802.50p -3.66%FTSE 250 - RisersSEGRO (SGRO) 238.00p +4.94%Daejan Holdings (DJAN) 3,033.00p +4.59%FirstGroup (FGP) 236.20p +2.61%Hikma Pharmaceuticals (HIK) 726.50p +2.18%Barr (A.G.) (BAG) 429.00p +2.12%WH Smith (SMWH) 556.50p +1.83%Brown (N.) Group (BWNG) 266.40p +1.80%Hansteen Holdings (HSTN) 74.00p +1.65%Britvic (BVIC) 309.80p +1.47%Redrow (RDW) 127.80p +1.43%FTSE 250 - FallersSpirent Communications (SPT) 144.70p -14.12%Ophir Energy (OPHR) 522.00p -10.39%Aquarius Platinum Ltd. (AQP) 34.71p -6.94%Ferrexpo (FXPO) 171.60p -6.89%Kentz Corporation Ltd. (KENZ) 355.00p -6.33%PayPoint (PAY) 670.50p -4.89%Talvivaara Mining Company (TALV) 139.00p -4.60%Cable & Wireless Communications (CWC) 29.64p -4.29%Avocet Mining (AVM) 81.30p -3.90%Centamin (DI) (CEY) 64.00p -3.76%NR