UK stocks rise as investors await BoE and ECB decisions Morrison s fails to impress

Stock markets have seen a reversal from yesterday’s sharp losses – the worst daily performance for the FTSE since July. Investors are taking relief from the progress in Greece passing the Austerity Bill through Parliament, a strong Spanish bond sale, and are also looking for direction from the latest Bank of England and European Central Bank rate setting meetings later this morning.

In Europe the ECB is widely expected to be in a wait and see mood with regard to further monetary policy, even though the debt crisis is starting to affect the output of even core eurozone countries such as the powerhouse Germany. Economic data from the likes of Germany and France has been much weaker in recent weeks, signalling that the eurozone is losing ‘its major engine of growth.’ However, whilst Spain continue to resist requesting a bailout it is unlikely that we will see any further action in the form of bond buying from the ECB.

Spain has now completed the majority of its funding for the year and its borrowing costs have remained below the all-important 6% level, above which borrowing is considered unsustainable. It is mainly due to ECB President Draghi’s promise of further bond buying when Spain asks for help that has kept rates lower and whilst they are not rising too quickly, Prime Minister Rajoy will be happy to avoid the highly politically sensitive issue of requesting a bailout.

Meanwhile the Bank of England is unlikely to make any changes to current policy, maintaining the size of its asset purchase programme and keeping rates on hold. There had previously been chatter of a further injection of QE at this month’s policy meeting, but that view has since changed after the economy grew more than expected between July and September.

Turning to corporate news Morrison’s Supermarkets reported less than pleasing third quarter results, knocking 1% off the value of its share. The company reported that comparable sales were down 2.1%, with total sales down 0.4%. Despite these falls, which were blamed on a challenging environment, Morrison’s did say that they expect yearly performance to be in line with board expectations. Sector peer Tesco were not adversely hit by this news and climbed onto the top gainer board for the FTSE, up over 1.1%.

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