For many years now, Mario Draghi has relied on a four-word promise to keep the Eurozone ship on an even keel. The European Central Bank (ECB) president has repeatedly asserted that he would “do whatever it takes” to save the euro. These soothing words used to be pretty much all it took to calm choppy markets. Not anymore, though. At the start of last year, the ECB was forced to cut interest rates and introduce quantitative easing – the policy by which central banks introduce new money into the money supply. To little avail, it seems. Central banks’ efforts may have saved the global financial system from meltdown, but the effectiveness of the Eurozone’s loose monetary policy remains questionable.
Clearly, it was time for some “shock and awe”. On Thursday, Mr Draghi unveiled a bigger-than-expected package of measures to stimulate the Eurozone economy. These included a big expansion to QE and further interest rate cuts. The ECB has set its refinancing rate to zero and cut its deposit rate to leave it at a historical low of minus 0.4%. Will the barrage of new measures work? That’s open to question. Unemployment remains stubbornly high, and the ECB’s updated inflation forecasts are worrying – a sharp downgrade from 1% to 0.1%. On top of that, the weak outlook for global growth will act as a headwind to Eurozone recovery.
Asylum contract dents G4S
For a company that specialises in security, G4S can be a tad careless when it comes to protecting its reputation or its shareholders’ money. Back in 2012, the company blundered after it won the security contract for the London Olympics. A failure to recruit and train sufficiently-trained staff led to the deployment of 3,500 British soldiers, and the share price plummeted when the company claimed it faced a £50 million loss on the contract.
So shareholders will have experienced an uncomfortable feeling of familiarity when G4S’s results were announced this week. A 40% fall in pre-tax profits was accompanied by the news that it has already lost £31 million on a five-year contract to house 18,000 asylum seekers. It could lose as much as £57 million if the Home Office exercises an option to extend the contract for a further two years. The share price fell by more than 10% on the news. This time last year shares in G4S were 300p, surpassing their pre-Olympic price. At Thursday’s close, they stood at just 184p.
Special dividend for Pru shareholders
Prudential’s share price has underperformed its peers since the start of the year – driven largely by fears of an Asian slowdown. Results released this week appear to show that these fears have been overdone. Not only did its 2015 figures exceed analysts’ expectations, but also, shareholders are to be rewarded with a special dividend – its first since 1970 – alongside their regular dividend. Global operating profits of £4 billion were 26% up on 2014. While earnings from Asia were encouraging – up 17% on strong growth in sales from Hong Kong and China, the main source of improved profits was the UK. While a large chunk of that – more than £300 million – was the result of a one-off balance sheet tweak, markets were nonetheless impressed, and the Pru’s share price was up 3% on the news.
And finally…
Biscuit-deprived Britons were rejoicing this week, after an emergency delivery of their favourite tea accompaniments arrived via two Boeing 777 aircraft which flew into Doncaster airport. The national biscuit shortage, caused by the lamentable dunking of the McVitie’s factory in Carlisle during the December floods, had left tempers frayed and patience wafer thin. While the cargo of cookies was widely welcomed, however, there was no confirmation as to whether the duo of planes may become a Trio for the next trip. There was also little to be said as to whether the biscuits were allowed to Hobnob in Club class during the flight.
