ICP.L Share News (ICP)

LONDON (Alliance News) - UK stock markets closed higher Tuesday after European Central Bank Executive Board member Benoît Cœuré said the central bank will accelerate its quantitative easing plan in the short-term, "moderately" front-loading May and June in order to prevent any summer economic slump.

In a speech in London on Monday that the ECB published on Tuesday, Cœuré said the central bank is aware of seasonal patterns in fixed-income market activity, with the traditional holiday period from mid-July to August characterised by notably lower market liquidity.

"The Eurosystem is taking this into account in the implementation of its expanded asset purchase programme by moderately front-loading its purchase activity in May and June, which will allow us to maintain our monthly average of EUR60 billion, while having to buy less in the holiday period," Cœuré said.

Cœuré's comments come amid a recent sell-off in the bond markets, which has also been causing volatility in equities markets across Europe, as they adjust to the ECB's quantitative easing measures and the recent bounce in oil prices.

Meanwhile, ECB Governing Council member Christian Noyer said the bank stands ready to take further steps to meet its price stability mandate. The Bank of France chief acknowledged that the ECB's quantitative easing has had a positive impact on inflation expectations, but said the central bank was ready to take further action, if needed, to meet its mandate of keeping inflation "below, but close to 2%".

"It's likely not a coincidence that the ECB is upping the ante on its bond-buying following a major bond-market sell-off especially with Greece's debt negotiations going to the wire," said Jasper Lawler, analyst at CMC Markets.

The euro fell sharply against other major currencies in response to Coeure's remarks, hitting a low of USD1.1117 against the dollar.

European stocks were buoyed, with the CAC 40 in Paris closing up 2.1%, while the DAX 30 in Frakfurt ended up 2.2%.

In London, the FTSE 100 rose 0.4% to 6,995.10, held back by its heavily weighted commodity sector as commodity prices were hit by the strong dollar. The FTSE 250 closed up 0.9% at 18,176.13, a new record high close for the index after it hit a new intraday high of 18,197.48. The AIM All-Share index closed up 0.3% at 762.43.

When the European equity markets closed, the DJIA was up 0.1%, the S&P 500 was flat, while the Nasdaq Composite was down 0.1%.

UK inflation turned negative for the first time since the official series started in 1996, and probably since 1960, according to the Office for National Statistics. Falling food and transport costs meant consumer prices fell 0.1% in April from last year, compared with economists' forecasts for it to remain flat as in March.

The drop in prices should boost the purchasing power of consumers, generating better prospects for consumer spending. However, the decline in April was largely caused by the timing of the Easter this year and economists widely expect the drop in prices to be short-lived. The Bank of England reiterated last week that it thought that inflation would be around zero, or even turn negative for a while, before rising notably around the turn of the year as the sharp decline in oil prices drops out of the comparison, wage and unit labor cost growth picks up, and the effect of sterling's appreciation also dissipates.

However, core inflation, which excludes seasonally volatile products such as food and energy, eased to a 14-year low of 0.8% from 1% in March. Economists had forecast it to remain at 1%.

"The negative inflation print is symbolic but reflects past falls in energy prices and a sharp fall in airfares in April, not the start of a sustained period of falling prices. The two-tenths fall in core inflation, excluding food and energy, to 0.8% will be of more concern to the Bank of England," said Myles Bradshaw, head of Global Aggregate Fixed Income at Amundi

"They will want to see core inflation stabilizing and, more importantly, signs of rising wage inflation before preparing the market for imminent rate hikes." Bradshaw added.

The pound declined against the dollar after the negative inflation reading, and was further weakened after the dollar rose on strong US housing starts data. The pound hit a low of USD1.5445.

New residential construction in the US showed a substantial increase in April, according to a report released by the Commerce Department, with housing starts jumping to their highest level in over seven years. Housing starts surged 20.2% to an annual rate of 1.135 million in April from the revised March estimate of 944,000. Economists had expected housing starts to climb to a rate of 1.029 million from the 926,000 originally reported for the previous month.

The dollar strength weighed on commodity prices, which in turn weighed on resources stocks in London. Miner BHP Billiton closed as the worst performing stock in the FTSE 100 for a second consecutive session, down 3.9%, while Fresnillo, down 3.5%, and Rio Tinto, down 2.5% were also notable fallers. BHP was additionally hit as HSBC downgraded the stock to Reduce from Hold.

Vodafone Group closed down 3.2% even though it beat earnings and revenue expectations for its recently-ended financial year, boosted by one-off gains and acquisitions. It also returned to organic growth in the fourth quarter as it reported "increasing signs of stabilisation" in many of its European markets and increasing demand for data.

Vodafone reported earnings before interest, tax, depreciation and amortisation of GBP11.92 billion in the year to end-March, up from GBP11.08 billion a year before, beating analysts' expectations of GBP11.87 billion. The growth was driven almost completely by its acquisition of Spain's Ono and Kabel Deutschland in Germany.

Analysts said the company's guidance for the current year - Vodafone expects Ebitda to be between GBP11.5 billion and GBP12.0 billion, and to be free cash flow positive after all capital expenditure, before mergers and acquisitions, spectrum and restructuring costs - was below expectations. They also raised concerns over the amount of time it is taking for the company's massive investment programme to feed through into profits.

Land Securities was one of the best performers in the FTSE 100, up 4.0%, after it reported strong growth in returns and profits in its last financial year as property valuations continued to surge and it achieved strong leasing levels across its new developments in London.

The real estate development trust also said the outlook remains positive as London remains supply constrained despite the increase in new developments. It reported a total business return of 30.7% for the year to March 31, with net asset value per share rising to 1,343 pence from 1,069 pence a year earlier.

DCC closed as the best performer in the FTSE 250, up 12%. The distribution company struck a EUR464 million deal to acquire French liquefied petroleum gas company Butagaz from Royal Dutch Shell, and also posted a rise in pretax profit for the year to the end of March.

DCC said it will partly fund the acquisition via the issue of at least 4.2 million shares, raising GBP184.3 million based on its closing price of 4,390p on Monday. The remainder of the funding required for the acquisition will come from existing cash resources. DCC shares closed at 4,908.2402p.

Big Yellow Group closed up 6.7% after it reported higher pretax profit for its last financial year, as higher occupancy and prices bolstered revenue and it booked gains on property assets. The self storage company said it made GBP105.2 million pretax profit in the year ended March 31, compared with GBP59.8 million in the prior year, as revenue grew by 17% to GBP84.3 million. Excluding gains on property assets, operating profit increased to GBP48.4 million from GBP39.5 million, but was up to GBP114.2 million from GBP67.9 million after taking the gains into account.

BTG shares slumped 7.8% as it posted a fall in pretax profit for its recently ended financial year as it increased investment in its business, particularly its Interventional Medicine segment, which offset a strong rise in revenue. It guided for a further increase in revenue for its current year.

For the year to end-March, BTG posted a pretax profit of GBP26.7 million, down from GBP33.3 million in the previous year, as a rise in revenue to GBP367.8 million from GBP290.5 million was offset by an increase in selling, general and administrative expenses of GBP124.8 million from GBP84.0 million, and adjusting and reorganisation costs of GBP33.0 million.

In the economic calendar Wednesday, there is Japanese GDP data at 0050 BST. German producer price index is at 0700 BST, before the release of the Bank of England minutes at 0930 BST. There is eurozone construction output at 1000 BST, US MBA mortgage applications at 1200 BST and US EIA crude oil stocks at 1530 BST. After the London close, the Fed minutes will be released at 1900 BST.

In the UK corporate calendar, there are full-year results from FTSE 100 constituents Marks & Spencer Group, Burberry Group, and SSE. In the FTSE 250, there are full-year results from Intermediate Capital Goods, Cable & Wireless Communications and Pennon Group. Zoopla Property Group, Thomas Cook Group, and Britvic will report half-year results. Hargreaves Lansdown and Ricardo issue interim management statements.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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