UK and Europe
The Bank of England keeping interest rates on hold catalysed an afternoon rally in financial stocks, which helped push the FTSE 100 into positive territory.
Shares in the rest of Europe were mostly lower since the inaction from the Bank of England did little to dispel the sense that central banks have reached the limits of monetary easing. Now that the Bank of England is out of the way, next week’s meetings from the Federal Reserve and Bank of Japan will be more reasons to stay on edge.
Retail company earnings had a mixed impact on the UK stock market with Morrisons (LON:MRW), Next (LON:NXT) and privately-owned John Lewis all reporting. Sluggishness in the oil prices held down energy company shares.
Shares of WM Morrison jumped over 8% after well-received quarterly earnings, pulling up shares of fellow Big four supermarkets Tesco (LON:TSCO) and Sainsbury's (LON:SBRY) too. Morrisons reported a 13.5% rise in pre-tax profits for the half-year through June and a third quarter of like-for-like sales growth.
Store closures have helped the new management led by David Potts control the supermarket’s costs, and partnerships with Amazon (NASDAQ:AMZN) and Ocado (LON:OCDO) should continue to improve sales.
Next shares dropped to the bottom of the UK equity benchmark, falling over 5% in a negative reaction from investors to its earnings update. Pre-tax profits at Next fell 1.5%, bolstered by gains in the online and catalogue Directory business. Next chief executive Lord Wolfson saying it has been a “challenging year” says it all.
Plans to push up prices next year to offset higher input costs (in US dollars) after the drop in Sterling will be another headwind. Higher clothing prices may see customers continue a long-running shift to cut-price fashion stores like Primark and fast fashion like Zara.
US
Stocks in the US were higher in morning trade as disappointing retail sales and industrial production data laid to rest any lingering hopes of rate rise in September.
Apple (NASDAQ:AAPL) shares reached a fresh five-month high whilst shares of America’s biggest bank Wells Fargo (NYSE:WFC) were under pressure again after the Department of Justice opened an investigation over the opening of millions of fake accounts.
FX
The British pound gave up early gains to fall on Thursday as traders switched attention from the Bank of England to next week’s meetings from the Federal Reserve and Bank of Japan.
Sterling got a lift after UK retail sales fell much less than expected in August and figures for July were revised higher. The data was before the Bank of England cut interest rates, showing an economic resilience that the Bank of England will struggle to take credit for.
The US dollar was resilient despite weaker than expected economic data in a sign of repositioning ahead of next week’s Federal Reserve meeting.
Commodities
Oil markets were soft for most of the day as traders brushed off a draw in official US inventories reported on Wednesday. Even though it was a draw, it’s a lot less than the previous week’s which was clearly almost completely because of storm Hermine.
Gold erased initial gains following the release of the weak US economic data in a failed attempt to break above yesterday’s high near $1330 per oz.