Markets rally whilst waiting for Draghi’s news

<p>Risk on mode has been the theme for the morning in the European stock markets as banks and resource shares lead the charge higher. Optimism […]</p>

Risk on mode has been the theme for the morning in the European stock markets as banks and resource shares lead the charge higher. Optimism is riding high as investors wait and hope for central bank intervention ahead of the ECB meeting at 12.45pm.

By mid morning the FTSE had gained 0.5%, the CAC 0.8% and the DAX 1.2% and the euro was trading around an 8-week high on expectations that the ECB will unveil new tactics to reduce the high borrowing costs for Spain and Italy.

A lot is riding on this meeting and disagreements between policy makers have been made quite public over the past few weeks, indicating what a tough job Draghi will have in order to reach a coordinated approach with other policy makers.

The markets know how important the intervention will be in order to buy government time to come up with a longer term solution to the eurozone crisis. However with all this hot air keeping the markets afloat, there is plenty of room for disappointment. Some investors will be expecting to see the t’s crossed and the i’s dotted but realistically this is  unlikely to happen. The most we might therefore expect from this meeting is a frame work, a broad outline for the new bond purchases.

Given the likelihood that some investors will be disappointed by the level of detail, or not, we are expecting a fairly volatile trading period after midday. Riskier assets have been in favour, with miners making up a large portion of the FTSE leader board, Randgold has gained4.2% and Antofagasta over 3.5%.

Whitbread has added 5% to the value of its shares after it beat expectation on all like-for-like metrics. The group reported that in the 11 weeks ending August 16total sales rose almost 15%, they said that they remain on track to deliver their ambitious growth programme, with their strong brand winning market share. Nomura added to the hype by confirming that they ‘believe that Whitbread offers compelling value for a stock, with impressive roll out potential.’

Results from Morrison’s supermarket were also well received by the market. Although they saw like for like sales stagnate, they still managed to increase underlying profits. Morrison’s gained 2.6% in early trading.

Economic data will be the focus of the afternoon. Not only do we have the ECB meeting, but prior to that we will have the Bank of England rate decision and purchase target.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.