At midday today the Bank of England will unveil its latest monetary policy mix, with widespread expectations for some easing following poor economic data since the EU referendum and dovish comments from voting members of the MPC. With such a major event on the horizon it is unsurprising that the markets are quiet this morning heading into the announcement, with the FTSE 100 and the pound little changed on the day.
Pound supported into rate decision
Rather surprisingly the pound has been performing quite well in recent sessions, despite the weak data and common belief that the BoE will announce easing measures later today. The GBPUSD yesterday touched its highest level in almost 3 weeks at 1.3370, with the previous peak just below the 1.35 level coming the day after the central bank disappointed markets by failing to fulfill expectations for easing. Should the bank under-deliver once more today, we could see a sharp move higher in the pound and a retest of the July highs. With short positioning at a record high in sterling, there is the potential for large moves to the upside on a less dovish than expected statement as shorts would scramble to cover and unwind their positions. Having said that, it’s hard to conceive a scenario that is bullish for the pound over the medium term as even if less aggressive stimulus measures are published at noon, it will increase the likelihood of a relatively more accommodative stance being adopted in the future.
Big moves under the surface
Whilst the index as a whole is broadly flat so far this morning, a closer look at the FTSE 100 reveals some large moves in individual stocks. The biggest mover is Hikma Pharmaceuticals (LON:HIK) which has dropped almost 15% after issuing a disappointing trading update after the market closed last night. The statement that new drug approvals were arriving more slowly than expected and the phasing of litigation costs at US generics have both contributed to the weakness, with analysts at Citi downgrading their recommendation on the stock this morning to further add to its woes. Insurance companies are seeing a boost to their stock price in early trade with Aviva (LON:AV), Prudential (LON:PRU) and Legal & General all near the top of the index.