Markets rally whilst waiting for Draghi s news

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 16, total 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.

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