Market Commentary | Bank of England cuts interest rate and boosted stimulus

Thursday was a frenzy day in the City of London after British central bank cut its key interest rate to a record-low 0.25% for the first time in seven years. The Bank of England (BOE) also unveiled a package of stimulus measures worth up to £170 billion including increasing quantitative easing program by £60 billion to £435 billion and making up to £10 billion of corporate bond purchases. Investors seem to appreciate additional money the BOE sided for the purchase of corporate bonds, and with stimulus to ease the lending to Brexit-hurt companies. The yield on the UK’s 10-Year bond was also driven to record lows.

The FTSE 100 index rose 1.59% to 6,740.16 points. The FTSE 250, where companies are more oriented for the British market was in the green as well closing up at 1.45% to 17,244.32 points. In Germany, the DAX index added 0.29% to 10,227 points while the French CAC 40 rose 0.57% to 4,345 points.

As Expected the British Pound kept sliding. The Sterling lost around 1.35% to the euro, fell approx. 1.48% against the U.S. dollar, down 1.58% compared to the Japanese yen and was 1.44% weaker versus the Swiss franc.

Meanwhile, spot Gold Prices were higher after the BOE news. After trading in the red in the previous session, gold increased 0.44% to go to $43.79 per gram. The yellow metal increased 2.07% over the past seven days and 6.53% in the past six months, a move the Brexit vote contributed significantly.

Some good corporate earnings added to the atmosphere. Insurer Aviva Plc jumped 7.22% after reporting a 13% rise in half-year operating profit. Banking shares were in demand and profiting, with the Asian-focused Bank Standard Chartered and HSBC was up around 5% and 2.7% respectively. The negative news comes from Lloyds bank, which fell 1.43%. On the other hand, the Engineering Company Siemens shares soared 5% following the good earnings and better output prospects, whilst the steel manufacturing ArcelorMittal also jumped 3% as the company had its ‘BUY’ rating re-affirmed.

The news from England had minimal impact on Wall Street, as markets opened almost flat. The unchanged US scenario was also the result of a higher production of crude oil in Iraq at 4.63 million barrel a day in July and the building up of inventories in the US, which were offset by a fall of gasoline supplies by 3.26 million barrels as reported by the Energy Information Administration. Of much more importance for Wall Street is Friday’s US job number – which if strong could revive expectations for a Federal Reserve interest rate hike later on this year.

This article was issued by Rodrick Duca, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.