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Stocks trade choppy as eyes remain on EU Summit and ECB decision

Article By: ,  Financial Analyst
December 8, 2011 11:59 AM

European stocks swung between small gains and losses on Thursday in very choppy trade as investors eyed developments at the EU Summit in Brussels and awaited an expected interest rate cut from the European Central Bank at 12.45pm.

Investors have stayed broadly on the sidelines in trading on Thursday, which is only natural considering how much is at play with the EU Summit.

Of those investors in the market today, we have seen a general will to diversify portfolios and offset the amount of risky assets they have by buying into defensive sectors such as pharmaceutical and tobacco firms. Both these sectors have rallied strongly as a result in London trade, gaining over 1% in trading with heavyweight pharmaceutical stocks such as GlaxoSmithKline pulling the FTSE 100 into flat territory by mid morning trade.

Trading has been very choppy however and it is expected to remain so unless we see a surprise from today’s ECB rate decision. Investors are expecting a rate cut of 25 basis points and there is a potential to hear about more liquidity support operations considering data showed that overnight emergency borrowing by banks from the ECB hit a new nine-month high.

Whilst much of the market is intensely focused on hearing statements that would indicate the ECB is imminently preparing to intervene in bond markets with the sorts of vigour the market is demanding, it is expected that Mario Draghi could wait to watch for developments and evidence of a ‘fiscal compact’ being reached first at the EU Summit before announcing this, if at all.

Speculation raged this morning from EU sources that the eurozone was likely to agree a loan of €150 billion to the IMF via bilateral loans through Central Banks and whilst this has long been speculated already, the size of which this is being rumoured at is somewhat disappointing and has triggered some bank weakness, pushing the FTSE back into flat territory.

With so much focus on the EU Summit and the ECB decision today, the market is likely to be headline driven with investors reacting to anything out of the euro region that might help them to gauge progress between EU leaders.

Shares in GKN were a top faller in UK trade as shareholders reacted to a downgrade by bank Credit Suisse on the firm’s shares to neutral from outperform. BP shares also lagged the FTSE 100 Index after a report in the FT that the oil giant was seeking a compensation package with the partners of its failed joint venture TNK-BP.

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