Proactive Investors -
- FTSE 100 jumps 14 points to 8,382
- Rolls-Royce (LON:RR), Shell (LON:SHEL), Barclays (LON:BARC), LSEG, Next, BAE Systems (LON:BAES) among companies reporting
- Bank of England decision due at midday
BoE cuts rates
The Bank of England has cut the interest rate to 5.0% from 5.25%.
It was a close vote by the members of the Bank's monetary policy committee (MPC) of 5-4, swinging from the 7-2 majority in favour of holding last time.
Pound the worst performer this week
The pound is currently the worst-performing G10 currency on a five-day view, notes Rabobank forex analyst Jane Foley.
"That contrasts with its position as the best performing G10 currency in the year to date, which it is holding onto this morning by a hair’s breadth.
"The recent softness of the GBP can be largely explained by the change in expectations regarding the prospect of a BoE rate cut today.
"The results of the Bloomberg economists’ survey, published last week, suggest that the majority were in favour of a rate cut announcement today – though it is likely that most forecasters would admit that it could be a close decision."
Aside from rate cut risks, Foley notes that the bigger picture has been more supportive of the pound, with the more stable political outlook adding to hopes that investment and growth in the UK can improve.
Additionally, the new Chancellor Rachel Reeves has been busy trying to build a reputation as someone that can be trusted with the country’s purse strings.
"A reputation of fiscal prudence could help with Reeve’s aim to rally private sector investors. While we recognise that the new government’s honeymoon period could run out of steam, possibly before the UK’s October budget, we continue to favour buying GBP on dips vs. the EUR and look for a move to EUR/GBP 0.83 on a 6-month view," says Foley.
Bets on BoE cut increase
Market betting on a BoE rate cut is pointing increasingly to a rate cut - which could mean a more volatile reaction if rates are held.
The swaps market has moved to a 62% probability of the Bank's monetary policy committee (MPC) cutting rates from the current 5.25% when we get the decision, which is due in 15 minutes.
Last week the bets were nearer 50-50%, while last night economists were saying it was too close to call.
This morning's easing of the pound also suggests currency markets expect this result.
Catching up on other stories
There are few other stories to note this morning, including that shipbuilding yard Harland & Wolff has unveiled an emergency loan in its latest bid to remain afloat.
The company, which owns the Belfast shipyard where the Titanic was built, announced an agreement to increase its credit facility by US$25 million (£19.5 million).
France's Worldline has also slumped 17% to a record low as the payments group cut full-year guidance, saying consumer spending was slowing down and a recovery remains uncertain.
Oxford Nanopore Technologies PLC (LSE:LON:ONT), the DNA sequencing tech group, rallied 12% after drug giant Novo Nordisk (CSE:NOVOb) bought a £50 million stake.
This was part of an equity issue and is the beginning of a larger investment from the Danish pharma firm, which plans to increase its stake through purchases in the secondary market.
Across the Atlantic, billionaire investor Bill Ackman has cancelled the planned public listing of his closed-end fund Pershing Square (NYSE:SQ) USA in an embarrassing U-turn.
Having made an almost Trumpian pronouncement that the listing would be among the largest IPOs ever, the process has been dogged by apparent inertia from would-be backers.
And a couple of the results I've not had time to mention.
BAE Systems PLC has lifted guidance and hailed a strong start to the year on the back of continued high demand for weapons.
Haleon PLC (LON:HLN) upped its forecast for profit growth this year after a strong performance from its power brands Sensodyne, parodontax and Centrum in the first-half of the year.
Real-time data
The Office for National Statistics has shared some 'real time' economic data for the past week, including retail footfall, flight numbers and job vacancies.
The daily average number of UK flights increased by 4% year on year for the week to 28 July, also up 1% on the previous week.
Summer holidays were also in effect on retail footfall, which increased 4% week-on-week, which was also up 1% on the equivalent week of 2023.
Online job adverts on 26 July were up 6% on the previous week but numbers were 12% lower than the equivalent week a year ago.
These fortnightly results from the Business Insights and Conditions Survey (BICS) showed that June saw a negative 5% year-on-year growth rate for sales by small businesses, down 15 percentage points from the growth rate in June 2023, while the year-on-year growth rate for employees in paid jobs in small businesses was at 1%, remaining broadly unchanged from the rate a year before.
Why markets are down?
Why are the FTSE and other European markets down this morning?
"We may also be seeing investors taking risk off ahead of the impending BoE announcement," said Chris Peters, trading floor manager at Accendo Markets.
Markets have also been driven lower this morning by sectors such as financials, autos and airlines on the back of disappointing results from Wizz Air (LON:WIZZ) and a trimming of guidance by Melrose , which along with Rolls-Royce mentioned supply chain issues.
Looking to the Bank of England interest rate decision, he says it appears to be on a knife edge ahead of the 12pm announcement.
"If they make the decision to not cut, investors will be looking for forward guidance, similar to that of the Fed last night implying a rate cut remains likely in September."
European markets sharply lower, says Josh Mahony at Scope Markets, "as traders continue to weigh up the higher-than-expected headline and core eurozone CPI rates reported yesterday".
Nonetheless, he says investors hoping for a blockbuster September "should feel encouraged by yesterday’s FOMC meeting, which saw Powell shift the focus back to a dual mandate that attaches greater importance to ensuring stability within the housing market going forward".
Keep an eye on the US jobs report tomorrow, where any further signs of weakness will bring increased confidence of easing from the Fed.
As for the UK, even though the Bank of England is possibly on the verge of cutting rates for the first time in over four years, Mahony says UK stocks markets are showing "precious little exuberance at the prospect of an impending rate cut, with the relative strength of the FTSE 100 coming down to small pockets of strength for the likes of Shell and Rolls-Royce".