European markets turbo charged by Draghi comments

European stock markets closed aggressively higher on Thursday after Mario Draghi, the ECB President, hinted towards more ECB action to help support the eurozone economy.

The FTSE 100 closed higher by 1.4% but more aggressive gains were seen outside of the UK’s shores, with the DAX and CAC both closing higher by 2.7% and 4% respectively. Italian and Spanish stocks advanced the most on the day with the MIB gaining over 5% and the IBEX rallying 6%.

The gains we have seen were triggered pure and simply by Mario Draghi, who shortly before lunch said that the ECB “is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” That is perhaps one of the most aggressive statements he has made since taking over from Jean-Claude Trichet and traders have lapped it up, translating the rhetoric that the ECB is set to flex its muscles to help reign in spiralling bond yields and boost liquidity.

The FTSE 100 rallied 100 points from the time Draghi spoke to the close and this emphasises just how much Draghi said what investors wanted to hear. That said, it remain rhetoric and we must see action to help justify today’s bullish moves in European equities. It remains to be seen whether traders will use today’s rally as an opportunity to vacate positions at higher levels for the summer break.

It was otherwise a mixed earnings picture in European trading today. Broadcasters performed well with ITC closing higher by 6.3% after reporting half year profits grew 15% to £235m, which was better than many had expected. BSkyB also pleased investors and announced an additional £500m in a share buy back.

However, it was major oil stocks that were a key drag on the FTSE 100 after both Royal Dutch Shell and BG Group both missed forecasts. Shell reported adjusted earnings of $5.7bn which missed expectations of $6.3bn largely down to the drop in oil prices and higher maintenance costs. BG Group reported a 4% drop in quarterly profit to $1.07bn, which also fell short of the $1.1bn expected by most investors. Were it not for these results and subsequent drag on the FTSE, the UK Index would have closed much higher today.

Lloyds Banking Group also gave a mixed report, seeing underlying profits for the first half of the year rise to £1.06bn, slightly ahead of expectations but the bank reported a first half loss due to taking an additional £700m provisions for PPI miss selling. Lloyds shares fell 0.5% as a result, underperforming a FTSE 350 banking sector that rallied 1.5% on the day.