Stocks consolidate record highs, pound ground down by BoE
LONDON — World stocks took a breather on Thursday after a strong few weeks, while the pound lost ground as the Bank of England edged towards rate cuts and a swooning Japanese yen prompted more intervention talk in Tokyo.
The pan-European STOXX 600 was consolidating two straight record highs, although London’s FTSE set a new one after the BoE and Spain was lively too as bank BBVA’s 12 billion euro ($12.87 billion) courtship of rival Sabadell suddenly turned hostile. The region’s bond and FX markets had spent the morning taking it easy, but the day’s big event - the Bank of England’s decision to leave UK rates at the 5.25 per cent level they have been since August - sparked them into life, as two of the bank’s nine rate setters - one more than in April - voted for a cut.
It also sent a message that bets on the first cut being in August might be too conservative as it lowered its inflation forecasts for two and three years’ time to 1.9 per cent and 1.6 per cent - below its 2 per cent target - from its February projections of 2.3 per cent and 1.9 per cent.
“That’s encouraging,” Governor of the bank Andrew Bailey told a press conference.
Sterling fell to $1.245 from $1.2486 just before the BoE’s decision and was last down 0.25 per cent. Against the euro, the pound traded at 86.14 pence, compared to 85.96 earlier
British government bond yields, which are a proxy of borrowing costs, fell too. The interest-rate sensitive two-year gilt yield was last down 2.2 basis points at 4.29 per cent having been at almost 4.33 per cent earlier.
HSBC Asset Management strategist Hussain Mehdi said the BoE had now set the stage for a summer rate cut. “The question is, do they go as soon as next month in line with a likely ECB move, or wait until August,” he said.
“Either way, European rate cuts are coming and we think they are likely to be delivered ahead of the Fed which remains hamstrung by stickier inflation.”
Wall Street stock futures were pointing to a fractionally lower start for U.S. markets after The Dow Jones Industrial Average had stretched its winning streak to a sixth session and closed above 39,000 points on Wednesday.
Focus was set to be on jobless claims data and tech stocks again after chip blueprint designer Arm Holding’s tepid full-year revenue forecast had its shares pointing almost 9 per cent lower.