BOE surprise hits shares, dollar steady ahead of Fed

REUTERS: Surprising news of all nine policymakers at the Bank of England (BoE) voted against restarting bond buying took markets off guard yesterday, hitting European shares and pushing up sterling.

The dollar steadied off a threeweek low, meanwhile, as investors awaited fresh clues on the Federal Reserve’s stimulus plans due from Ben Bernanke, the head of U.S. central bank, later in the day.

Europe’s broad FTSEurofirst 300 share index tumbled after the BoE minutes from new Governor Mark Carney’s first meeting.

Carney and the bank’s other policymakers voted unanimously against more bond purchases, setting aside their differences ahead of a soon-tobe-released review on giving guidance about future interest rates.

Early gains in the index turned into losses of 0.4 percent. UK gilts also fell while sterling jumped a two-week high as market nerves and thin liquidity ahead of Bernanke’s appearance amplified the moves.

“It’s quite a surprise that nobody voted for more,” said Deutsche Bank economist George Buckley, referring to quantitative easing bond buying.

“Now, the question is, if they don’t do anything on forward guidance, do they then go back to reverting to QE? I sus- pect not, because the data has shown signs of recovering.”

Focus was otherwise squarely on a testimony to the U.S. Congress by Bernanke later where he is expected to try and calm market worries about life without the central bank’s US $ 85-billion-a-month bond-buying programme.

The dollar was steady having climbed off a three-week low overnight, though investors were wary of being long the dollar, after Bernanke last week caused a shakeout of posi- tions with comments that were considered unexpectedly dovish.

“The market was quite long of dollars then it got that shock,” said John Hardy, head of FX at Saxo Bank. “A very dovish outcome from the testimony could see some short-term dollar weakness but it could turn around pretty quickly, so we’ll see.” BigBen Yields on 10-year U.S. government debt hit a two-year high on July 8 after the Fed laid a rough timetable for wind- ing down its bond buying, a move that spooked investors worldwide, but have since eased more than 20 basis points.

European bonds, even away from the UK, reacted badly after the BoE meeting minutes with, benchmark German Bunds tracking a slide in Gilts to a session low.

Wall Street was expected to open around 0.3 percent lower, though with Bernanke’s prepared remarks for Congress due to be released ahead of the U.S. market open at 1230 GMT, moves were difficult to predict.

U.S. stocks eased overnight, with the S&P 500 snapping an eight-day winning streak after disappointing sales from Coca-Cola.

In the commodity markets, gold dipped 0.1 percent, after gaining 0.8 percent on Tuesday, while copper prices fell 0.5 percent to below US $ 7,000 a tonne, giving up some of the previous session’s 1.2 percent gain.

Brent crude prices fell 0.3 percent to below US $ 108 a barrel, retreating from a 3-1/2 month high hit on Tuesday.

“Traders would be very cautious in taking fresh positions given that they have been burnt on both sides, on the dovish side as well as the hawkish side,” said Ben Le Brun, an analyst at OptionsXpress in Sydney, speaking of the U.S. Federal Reserve’s stimulus programme.