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Corporate earnings provide a little distraction prior to ECB Meeting

Article By: ,  Senior Market Analyst
August 2, 2012 4:21 PM

It has been a relatively quiet start to the penultimate trading session of the week, with equity markets edging cautiously higher as investors wait on the outcome of the policy meeting both at the European Central Bank and the Bank of England later today.

Following disappointment from the Federal Reserve yesterday traders have been looking at corporate earnings to provide a little distraction in the run up to the policy meetings.

By mid morning the DAX had gained 0.7%, the CAC 0.6% and the FTSE 0.6% – an acceptable start following its increase of 1.4% yesterday.

On the equities front, Schroders reported Assets under Management had increased in the first half of 2012 to £194 billion, up from £187 billion at the end of last year; however profits before tax were down slightly from £215 million to £177 million. Despite the mixed results the stock has proved popular this morning, gaining over 2.77% and is the top gainer on the FTSE.

Close behind, Smith and Nephew has climbed over 2% this morning as the medical specialist has performed in line with expectation and increased its dividend following the success of its restructuring programme. A rise of the interim dividend to 7.3 cents was expected but the actual rise to 9.9 cents from 6.6 pleased the market.

Now that the earnings have been digested once again attention is turning to the ECB meeting, however, with increasing scepticism as to the action that Draghi can actually take. Only yesterday the German central bank again reiterated that is thinks that the ECB should not resume buying government bonds and although Draghi could go against the wishes of the Bundersbank, as it has previously, this would not present the united front which is so essential in these troubled times.

Therefore it seems more likely that another disappointing meeting will pass despite the extremely strong words of action from Draghi last week. On a positive note, the Spanish 10-year bond yield has managed to stay below 7% at 6.69%, although whether this continues to be the case after the meeting today remains to be seen. Additionally equity markets rallied strongly after the comments from Draghi, so a lack of action will see these gains unravel quickly.

Here in the UK the Bank of England looks set to stick with its current stimulus plan.

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