Mark Carney’s MPC’s decision to hold interest rates and QE at the current level came as no surprise to the market, despite the increasing furor amongst economists and the media for an early increase in interest rates. The MPC’s is determined to enforce forward guidance policy believing it to be beneficial for UK businesses. Although economic growth is stronger than most people envisaged a few months ago, there is still no evidence that the time is ripe to tighten policy, given that earnings are below 1% and inflation at just over 2%. What has surprised us all is the fact that Mr Carney has not lowered the threshold of unemployment from 7% to 6.5% to accommodate the adopted benign policy towards interest rates.

Over in Brussels, the ECB president Mario Draghi said rates would “remain at present or lower levels for an extended period of time.” There had been speculation that the bank might act to bolster the fragile nature of growth in the 18-nation euro zone. With inflation falling below 1%, there is also concern about deflation as consumers delay purchases in the hope of prices falling further. The euro zone’s economy grew only 0.1% in the third quarter, while inflation, at only 0.8%, remains below the ECB’s goal of about 2%.

In terms of stock market activity amongst large stocks, it has been another relatively rubbish day, with the FTSE 100 losing 26 points to 6995. Morrison has taken a beating losing 8.3% with Wm Hill not far behind, easing by 7% and ARM down by 6.7%. Aberdeen AM lost 3.2%. On the plus side the market seems to want to believe in the Gospel according to St Bolland – that despite M&S’S 10th quarterly sales loss everything will be ‘all right on the night’ in terms of Belinda Earl’s fashion and the share leapt by 3.4%, having at one point been up by over 5%. On line sales over Christmas were up 23%. Also Marc Bolland refused to get drawn on a time scale for an improvement in fashion sales, apart from focusing on record food sales – up 4.1%. Tullow grabbed in 3% and Lloyds Banking Group added another 1.7% in value ahead of next month’s results and possible news of a further tranche (10%) to be sold to private investors and fund managers.

Small and mid-caps continue to grab the headlines – First Group, Thos Cook and Johnston Press (20% in last 3 days) have leapt like the proverbial grilse in the last 4 days.

Tomorrow is the 3 month anniversary of the Royal Mail’s IPO. The share were up three ‘halfpence’ on the day to 563p – not a bad little Arfur Daley issued at 330p – up 70.6% The trading statement is out on 24th January. It will be interesting to see what Moya Greene made of RMG’s Christmas turnover.

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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