Daily Market Report - 23/09/2014

It was a bad day for Britain’s biggest retailer, Tesco, after it shocked the City by admitting that it had overstated its forecasts for profits by a staggering £250m. The mistake, prompted the company to suspend four senior executives over the weekend. City analysts said they were shocked by the latest crisis at Tesco, which had already made three profit warnings this year.

The company’s share price has slumped to an 11-year low today, down 11.5% to 203p. That wipes more than £2bn off off its Market capitalisation, from £18.78bn to £16.5bn. Tesco shares have lost 40% of their value this year alone.

The European Central Bank president said a planned asset-purchase program shows that policy makers will steer the size of the institution’s balance sheet to avert deflation. In comments in Brussels yesterday, he underlined the need for that approach to revive the economy. Even after cutting borrowing costs for banks to record lows and offering long-term loans, Draghi is struggling to persuade them to take more ECB cash to finance lending to the real economy. In contrast to other major central banks, the ECB’s assets have shrunk by a third since 2012.

A more proactive way of injecting funds would be the program to buy asset-backed securities and covered bonds, details of which are scheduled to be unveiled next month. The ECB president has so far left open the option of large-scale sovereign-bond purchases, or quantitative easing. Economic growth in the euro area came to a halt in the second quarter and Draghi mentioned that recent indicators have given no indication that the sharp decline in economic activity in the region has stopped. Again this is more bad news for the Eurozone and indicates there is likely to be further trouble ahead. 

The president of the Federal Reserve Bank of New York said the strengthening dollar could hamper efforts to spur growth and lift inflation. He is said that the strength of the USD could keep dragging inflation down by lowering the price of imported goods and will continue to reduce pressure on the Fed having to increase interest rates.

Key Announcements
07:30 – EUR – Manufacturing and services PMI (Sept) – expected to come in at 50.5 from 50.7
13:00 – USD – House price index  - no predictions out currently
13:45 – USD – Manufacturing PMI (Sept) – expected to rise to 58 from 57.9

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