Markets in London edged higher on Thursday around midday, after news that the Bank of England has cut interest rates for the first time in over four years.
Against the dollar, the pound slipped to $1.2768 early on Thursday afternoon in London, from $1.2844 at the London equities close on Wednesday. Sterling traded as low as $1.2755 earlier on Thursday, its weakest level in around a month.
The FTSE 100 index rose 16.49 points, 0.2%, to 8,384.47. The FTSE 250 added 33.21 points, 0.2%, at 21,633.92, while the AIM All-Share traded up just 0.18 of a point at 787.20.
The FTSE 100 was only marginally higher before the rate decision, while both the FTSE 250 and AIM All-Share had traded in the red.
The Cboe UK 100 was up 0.4% at 837.85, the Cboe UK 250 added 0.5% to sit at 18,953.16, but the Cboe Small Companies rose 0.6% to 17,351.95.
The CAC 40 in Paris fell 0.9%, while Frankfurt’s DAX 40 traded 0.8% lower, the duo struggling amid some poorly-received corporate earnings. Societe Generale, BMW and Daimler Truck were among those to trade lower.
In New York, the Dow Jones Industrial Average is called up 0.1%, and the S&P 500 and Nasdaq Composite up 0.4%.
Five members of the nine-strong BoE Monetary Policy Committee voted in favour of the cut, Governor Andrew Bailey included. Four preferred to maintain bank rate at 5.25%.
Since cutting rates in March 2020, in Threadneedle Street’s response to Covid-19, it enacted 515 basis points worth of hikes, lifting off in December 2021, to tame inflation.
The headline annual rate of consumer price inflation returned to the 2% BoE target in May and remained there last month. However, services inflation stood unchanged at 5.7% in June on-year.
The BoE said on Thursday: ‘It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.’
The euro traded at $1.0789 around midday London time on Thursday, falling from $1.0826 at the time of the European equities close Wednesday. Versus the yen, the dollar slipped to JP¥150.08 from JP¥150.36.
The BoE decision came hot-on-the-heels of the Federal Reserve on Wednesday.
At the conclusion of its two-day meeting, the US central bank voted to maintain the federal funds rate range at 5.25% to 5.50%. The vote was unanimous. The federal funds rate has been at that level since July 2023, when the Fed last hiked rates, which took the range to its highest level in more than two decades.
Chair Jerome Powell said the central bank’s ‘confidence is growing because we are seeing good data’.
‘We think the time is approaching....and a rate cut could be on the table at the September meeting,’ Powell said.
Societe Generale analyst Kit Juckes commented: ‘The Fed left rates on hold but if we continue to see benign inflation data (as per the last two softish CPI prints) and nothing untoward happens, they are on track to ease policy. September seems a shoo-in bar data surprises. The challenge is that with 72bp of cuts priced in for the three remaining FOMC meetings this year (and a further 19bp for January), the FOMC pretty much have to cut every meeting to keep up with the market.’
The lofty rate cut expectations, combined with the ‘backdrop of an economy that is growing reasonably fast’, could result in the market being disappointed, Juckes added.
‘We’re only going to get this mamy cuts, this fast, if something goes wrong. For now, all is well and we await claims, manufacturing ISM and tomorrow’s payroll data for the next update,’ Juckes said.
Friday nonfarms payrolls data is expected to show the pace of hiring eased to 175,000 in July, from 206,000 in June, according to FXStreet cited consensus.
In London, Rolls-Royce jumped 11%, the best large-cap performer.
In the first half of 2024, Rolls-Royce said pretax profit was flat at £1.42 billion compared with a year prior. Operating profit more than doubled, however, to £1.65 billion from £797 million, as operating margin rose to 18.6% from 10.6% a year before.
Revenue climbed by 18% to £8.86 billion from £7.52 billion.
The jet engine maker confirmed shareholder distributions will be reinstated with 2024 full-year results. The firm intends to pay out 30% of underlying pretax profit for 2024 and a 30% to 40% ratio thereafter.
Reflecting the strong first half, Rolls-Royce increased its guidance for 2024 underlying pretax profit to £2.1 billion to £2.3 billion from £1.7 billion to £2.0 billion before. Underlying pretax profit was £1.26 billion in 2023.
The firm expects 2024 free cash flow of £2.1 to £2.2 billion, up from a £1.7 to £1.9 billion view previously. This was £1.29 billion in 2023.
Next shot up 8.4% as the clothing and homewares retailer also upped its profit outlook. Full-year pretax profit of £980 million is now expected, which would represent a 6.7% rise from the prior year. It had previously predicted profit of £960 million.
In the second-quarter to July 27, full price sales rose 3.2% on-year, ‘exceeding our expectations by £42 million’, Next said.
It had predicted second-quarter full price sales would fall 0.3% during the quarter, ‘given the exceptional summer last year’.
Travel stocks traded lower, with Wizz Air tumbling 13%. In the first-quarter ended June 30, total revenue improved 1.8% to €1.26 billion from €1.24 billion a year prior.
It reported a €4.5 million pretax loss, however, swinging from profit of €67.1 million.
AJ Bell analyst Russ Mould commented: ‘Fresh from being nominated ’worst’ airline for customer service by Which?, Wizz Air has now served up a set of results that have angered investors.
‘This is the latest in a string of problems for the industry, including consumers waiting until the last minute to book flights which has triggered a price war among airlines hoping to fill their planes.’
Peer easyJet fell 2.0%, British Airways parent International Consolidated Airlines Group fell 1.7% and Jet2 lost 0.9%.
A barrel of Brent rose to $81.37 early Thursday afternoon, from $80.37 at the time of the London equities close on Wednesday. Gold traded at $2,435.37 an ounce, up from $2,423.09.
Still to come on the economic calendar is the latest US initial jobless claims reading at 1330 BST, before a pair of PMI readings for the world’s largest economy at 1445 and 1500.
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