- Pound plunges on Bank of England dovish surprise
- FTSE 100 drops
- House builders lead, commodity stocks drag
- Facebook (O:FB) new record high
- Oil tanks
UK & Europe
European stocks reversed early losses to make a new two-month intraday high on Thursday led by strong earnings from Adidas (DE:ADSGN) and Socgen. The Euro Stoxx 50 traded briefly to 3,475, its highest since August 19.
Weakness in commodity stocks held down the UK benchmark index despite earnings-led gains in the property and healthcare sectors. The Bank of England signposting a longer period of monetary accommodation was taken as a sign of weakness for the UK economy.
The Bank of England kept interest rates on hold, released meeting minutes and its quarterly inflation forecasts. Voting on the MPC remained at 8-1 as expected with only Ian McCafferty willing to look through the energy-induced low inflation.
The dovish surprise came from the inflation forecasts. Governor Mark Carney crushed any expectation that the bank might look to table a more hawkish outlook in order to bring back in dovish expectations priced into the market. As it turned out, the market was right. The BOE forecasts were so dovish that the Bank of England almost seems more aligned with the European Central Bank than the Federal Reserve.
After declining this week, house builders bounced back towards the top of the FTSE 100 with Persimmon (L:PSN) a top riser after strong results on Wednesday. Mining and oil companies were the biggest drag as Randgold (L:RRS) reported a drop in profits while oil and copper prices fell.
US
Stocks in the US opened tentatively higher on Thursday bolstered by another stellar set of results for Facebook that took the social network’s market cap over $300bn. Both the Dow and S&P 500 gave up the early gains as nerves kicked in ahead of Friday’s jobs report that could serve to reinforce Janet Yellen’s hawkish narrative.
Facebook shares hit an all-time high after a well-received third quarter earnings report. Another quarterly advance in mobile advertising saw Facebook beat earnings forecasts. Revenues grew at a faster pace than expected supported by 1.55bn monthly active users, a whopping 20% of world’s population.
FX
The US dollar was mostly unchanged on Thursday ahead of the hotly anticipated jobs data. Speeches from Fed members Tarullo and Lockhart are scheduled for later on Thursday.
The British pound plunged against the euro and the US dollar following a much more dovish than expected Bank of England. EUR/GBP rallied off a two-and-a-half month low to above 0.71, eclipsing the last two days of losses. GBP/USD dropped below 1.525 to a two week low.
Commodities
Oil prices slumped for a second session on Thursday after Saudi Arabia’s Aramco cut its December delivery prices. Wednesday saw the biggest one-day slide in WTI crude in three weeks after US oil inventories rose for a sixth consecutive week. Brent crude has fallen in sync with WTI, again failing to hold above the psychological $50 per barrel level.
Gold has fallen out of bed since the Fed kept a December rate rise on the table at its October meeting so Ms Yellen’s reiteration that December was a “live meeting” has added to losses. Gold now sits just above $1,100 per oz which supported declines in September and early October.
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