Market Commentary | Post-Brexit stimulus and high US jobs data

Frenzy week as European markets vary on nervousness about the stress tests on banks shares, but moving higher at week’s end on Bank of England’s (BOE) easing and on U.S economic data.

It was a frenzy week, European markets varied on nervousness about the stress tests on banks shares, but moving higher at week’s end on Bank of England’s (BOE) easing and on U.S economic data. The news helped the blue-chip index FTSE 100 jump 0.79% and the more domestically focused FTSE 250 up 1.3%. NASDAQ and S&P were also in positive territory. Earlier Asian markets were also mixed as Japanese markets fell and the Chinese barely moved over the week.

Markets eyed the end of week data with a focus on BOE’s action to re-balance the economy from the Brexit vote result in the United Kingdom. On Thursday, the BOE announced the biggest stimulus package since the financial crisis. The interest rate was cut from 0.5% to 0.25%, which would be the lowest level in its history.  It also announced the purchase of government and corporate bonds to help stimulate the economy and take measures to boost banking lending. As expected, the BOE also reduced its forecast for economic growth in 2017 to 0.8% from an earlier 2.3%, reflecting the expected cost to the economy to exit the European Union.

The British Pound skidded to an eight-day low against the U.S Dollar falling by as much as 1.6%. There is little optimism about the direction the pound will take towards the year end, as Major Banks have mixed feeling of where it will be heading. The fall in the UK bond yield will tend to be the main driver for the pound’s weakness, as markets believe that the BOE can do more easing in the future, which is keeping the downward momentum for the currency.

On Friday, U.S equities advanced on their highs after initially being held back by oil volatility and weak economic data. U.S. indexes returned to high levels after the U.S monthly job report was better than expected. The U.S economy created 225,000 jobs in July, which was above the expectations of 180,000, adding to the strong employment performance in the previous month. Apart from this, the focus was still on corporate companies as the earnings season is still in progress. Although some corporate quarterly earnings were mixed, some strong figures came from technology companies that pushed the NASDAQ index to a record.

In other news:

The transportation network company UBER has agreed to trade its Chinese operations for a minority stake in China’s Didi Chuxing Technology. The move ends a competitive price war and allows Uber to focus on other markets. The company has remained profitable in the U.S and Canada, but losses in emerging markets remain a concern.

Disclaimer:

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.

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