FTSE 100 closes just shy of record close
Cable slumps after Bank of England hikes rates
UK construction PMI rises more than expected
FTSE 100 finished not far off a record closing high as the pound weakened amid the backdrop of a first interest rate rise by the Bank of England for over a decade.
The index of UK blue chip shares closed up around 67 points at 7,555.
On October 12 this year, it made a new high, finishing that day at 7,556 - a gain of 0.3% on the day.
The Bank raised rates to 0.50% from 0.25% but it was widely expected. It said future increases would be at a ‘gradual pace and to a limited extent’.
Sterling fell heavily on Thursday, shedding 1.87% against the Euro and tumbling 1.54% against the US dollar at the time of writing.
Laith Khalaf at Hargreaves Lansdown noted: "The FTSE 100 has ended the day within a whisker of a record high, with the falling pound helping to drive up the share prices of the international companies in the benchmark index."
He added: "The market has delivered yet another salutary lesson on why not to invest on the basis of macro-economic events like an interest rate rise."
The analyst noted that, in theory, the interest rate rise should have been positive for the pound and the banking sector, and negative for gilts and the FTSE 100 but the pound fell, as did Lloyds (LON:LLOY) and RBS (LON:RBS) shares, while gilts and the broader Footsie rallied, turning the investment textbook on its head.
"This is largely because markets wanted more than a rate rise from the Bank of England today, and were pricing in a more hawkish stance on the future path of monetary policy.
"As things now stand, it looks like we’re only going to get two rate rises in the next three years," he said.
3.45pm: Summary of events so far today
The FTSE 100 continued to jump ahead of the close as the pound dropped after the Bank of England raised interest rates for the first time in a decade but said future hikes would be gradual.
Sterling fell 1.27% against the dollar to US$1.3077 and declined 1.47% versus the euro to €1.1231.
The Bank raised rates to 0.50% from 0.25% but it was widely expected and seen by analyst as merely a correction from last year’s cut.
The central bank said future increases would be at a ‘gradual pace and to a limited extent’ and added that Brexit uncertainty was weighing on domestic activity.
“The pound reacted pretty damn violently to all this,” said Connor Campbell, financial analyst at Spreadex.
“Even considering the potential damage the rate rise will do to consumer spending, and therefore the health of its retailers, the FTSE revelled in the pound’s fall, surging 50 points to a 2 week peak.”
The Bank’s policy decision overshadowed other market developments, including economic data and corporate results.
Markit’s UK construction PMI rose more than expected in October but revealed the industry remains under pressure while the final reading on German manufacturing PMI for October was revised higher.
In the US, initial jobless claims fell in the latest week and beat expectations.
In companies, Royal Dutch Shell shares rose after reporting a jump in third quarter earnings.
Going the other way, BT and Randgold Resources declined after disappointing quarterly earnings.
3.15pm: Lenders respond to BoE rate increase
Following the Bank of England’s interest rate hike, some lenders have already started to raise their own.
Yorkshire Building Society said standard variable rate mortgages will rise by 0.25% to 4.99%.
HSBC will raise tracker mortgages on Friday in line with the base rate increase and is reviewing other rates.
TSB said it will increase rates by the full amount on its variable rate savings, mortgage and base rate linked credit card accounts. The changes to credit card customers will come into effect on 30 November followed by mortgages and savings accounts the next day.
However, Lloyds Banking Group said it was reviewing the Bank’s rate decision but would make no immediate change.
Barclays also said it was reviewing the position.
2.50pm: Bank won't raise rates again until Q4 of 2018, says EY Item Club
EY Item Club’s chief economic advisor Howard Archer thinks it will be some time before the Bank of England raises interest rates again.
He expects the Bank will hold off on another rate hike until fourth quarter of 2018. At that point he predicts rates will rise to 0.75% from the current 0.50%
“There is still little evidence of pay growth picking up despite the tightness of the labour market, and there looks to be a very good chance that inflation will fall back markedly during 2018 as the impact of sterling’s sharp drop over the second half of 2016 increasingly fades. Meanwhile, the economy is still subdued while Brexit uncertainties cloud the outlook,” he said.
“Furthermore, given that this is the first interest rate hike since 2007, the MPC may well feel a need to sit tight for an extended period to see how consumers and businesses respond.”
2.00pm: US weekly jobless claims fall
Across the Atlantic, US data showed the number of Americans filing for unemployment benefits fell last week.
US initial jobless claims dropped 5,000 from the previous week’s revised level to 229,000, compared to expectations for an increase to 235,000, the Labor Department revealed.
The four-week moving average, which is considered a more reliable measure of jobless claims, fell 7,250 to 232,500 from the previous week's level, which was revised up by 250.
The report comes ahead of the all-important US non-farm payrolls report on Friday, which may influence the Federal Reserve on whether to raise interest rates in December.
1.40pm: Interest rate forecasts 'meaningless' amid Brexit uncertainty, says ETX Capital
Commenting on the Bank of England’s interest rate announcement, ETX Capital’s Neil Wilson thinks “this was about as dovish hike as you get”.
“A hike was telegraphed but what was less certain was whether this would be the start of a tightening cycle or one-and-done,” he said.
“From the cautious language, it’s more like one and wait-and-see. Further hikes will be ‘at a gradual pace and to a limited extent’.”
Wilson said with Brexit weighing on the outlook, this statement could just as easily be reversed next year.
“Brexit poses such a fundamental risk to the economic outlook to some extent the interest rate expectations are somewhat meaningless.”
probability of rates being at 0.5% next Nov: 18% before release, 29% after - market sees Bank moving very slowly
— Neil Wilson (@neilwilson_etx) 2 November 2017
1.10pm: Bank expects gradual pick up in real wages
BoE governor Mark Carney said the Bank expects the squeeze on household incomes to ease next year as wage growth picks up and inflation begins to fall.
The governor said there should be a “gradual” pick up in real wages as productivity and investments improve.
However, pay rises are still expected to be below historical averages in a couple of years’ time.
1.00pm: Inflation will continue to overshoot Bank's 2% target in 2020, says Carney
The Bank of England has raised its inflation expectations for this year but cut its forecast for 2018 , and left its estimate for 2019 unchanged.
Carney said even with two rate hikes over the next three years, inflation will continue to overshoot the Bank's 2% target.
The GDP forecast was downgraded for 2017 but maintained for 2018 and 2019.
BoE Inflation Report (Median Q4 CPI):
2017 +3.0% v +2.8% previous
2018 +2.4% v +2.5% previous
2019 +2.2% v +2.2% previous
2020 +2.1%
— Sigma Squawk (@SigmaSquawk) 2 November 2017
12.50pm: Mark Carney kicks off press conference
Bank of England Governor Mark Carney said the Bank’s forecasts are based on two more interest rate rises over the next three years.
In a press conference after the Bank raised rates to 0.50%, he said the future rate hikes will be needed to bring inflation back to the 2% target.
"The time has come to ease our foot off the accelerator," he said.
Pantheon Economics said the Monetary Policy Committee’s new forecasts imply that markets are “broadly right” to expect two further 25 basis point increases in the Bank Rate over the next two years.
12.40pm: FTSE up, pound down in lunchtime trading
The FTSE gained 51 points to 7,539 in lunchtime trading as the pound slumped on a dovish statement by the Bank of England.
While the Bank has raised rates to 0.50% from 0.25%, this was widely expected and remarks that future increases would be gradual have disappointed the market.
In response, the pound is down 0.96% versus the dollar at US$1.3118 and down 1.23% versus the euro at €1.1259.
“The rights and wrongs of the decision will be debated ad infinitum, but it a 25-basis-point increase merely reverses last year’s cut – which was arguably unnecessary – and returns rates to where they’ve been for the entire post-crisis period. So not much has changed,” said Ben Brettell, senior economist at Hargreaves Lansdown.
Elsewhere in company news, BT Group plc is still in the red after reporting a drop in second quarter profits and revenues.
Randgold Resources dropped after the gold miners posted a fall in third quarter profit and production.
RSA Insurance slumped after saying it has set aside £50mln for US and Caribbean natural disasters.
On the upside, Royal Dutch Shell gained after reporting a 47% increase in quarterly earnings, boosted by a recovery in oil prices.
12.30pm: BoE drops warning that rates may need to rise more than expected
Contributing to the slide in sterling, Bank of England has dropped its reference in the September meeting minutes that interest rates may need to rise faster than the market expected.
In the meeting minutes, the Bank had said: “If the economy were to follow a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast than the path implied by the yield curve underlying the August Report.
*BOE DROPS LINE THAT RATE MAY NEED TO RISE MORE THAN MKT EXPECTS
— Michael Hewson ???????? (@mhewson_CMC) 2 November 2017
12.25pm: Analysts react to BoE policy decision
Analysts' reaction to the Bank’s rate hike is that the move was widely expected and is unlikely to rock the boat.
CBI chief economist Rain Newton-Smith said: “While it’s the first rate rise in over a decade, it is only taking the rate back to the level seen in August 2016 and at 0.5% it remains near rock bottom.”
Newton-Smith added: “Businesses will be watching the reaction of consumers closely and what’s important is the pace of any future rises. As rates creep up, it’ll be important to keep an eye on the impact for those at the lower end of the income scale.”
AJ Bell Investment Director Russ Mould said: “A very gradual series of rate increases looks unlikely to rock the boat too much, at least for now, although if the Bank is right and inflation is coming then investors may need to revise their stock-picking strategy, shifting from growth stocks (like technology) and high-yielding names to more cyclical or value names, like real estate plays or oils and miners, as well as index-linked bonds.”
Jacob Deppe, Head of Trading at online trading platform, Infinox, said: “Brexit uncertainty is likely to continue to hold back economic growth in 2018 and if inflation has peaked, the case for further rate rises until the economy is on a firmer footing will be weak to say the least. Another rate rise seems unlikely before the Autumn of 2018.”
12.20pm: Inflation to exceed 3% next month, BoE predicts
The Bank of England has warned that Brexit is having a “noticeable impact on the economic outlook”.
“The overshoot of inflation throughout the forecast predominantly reflects the effects on import prices of the referendum-related fall in sterling,” it said.
The Bank expects inflation will peak above 3% in October as the depreciation of sterling and recent increases in energy prices continue to pass through to consumer prices.
It sees inflation fall back over the next year as the effects of rising import prices on inflation diminish.
12.10pm: Pound plunges on dovish BoE
The Bank of England said it still only expects interest rates to rise gradually over the next three years, sending the pound plunging.
“All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent,” the Bank said in a statement.
Sterling fell 0.75% versus the dollar to US$1.3145 and 1.09% versus the euro at €1.1275.
To say this rate rise was well trailed would be understatement. Pound's not looking happy though - down 1% on the $ and 1.2% on the euro.
— Andrew Verity (@andyverity) 2 November 2017
12.00pm: Bank of England hikes rates for first time in a decade
The Bank of England has raised interest rates by 25 basis points to 0.50%, as widely expected.
Monetary Policy Committee policymakers voted 7-2 to raise rates after coming under pressure to tackle rising inflation, which has exceeded its 2% target.
The Bank voted unanimously to keep asset purchases at £10bn.
11.10am: UK construction sector still struggling, says EY Item Club
The Markit/CIPS UK construction PMI rose more than expected in October but the report still points to the sector struggling at the start of the fourth quarter after output contracted in the third and second quarters, said EY ITEM Club’s Howard Archer.
He said the PMI of 50.8 marked the second lowest reading since August 2016.
“The construction sector’s struggles in recent months points to heightened economic, political and Brexit uncertainties fuelling companies’ caution over committing to new projects,” Archer said.
Looking ahead, he added: “Slow economic activity and appreciable economic and political uncertainties threaten to be a highly challenging combination for the construction sector over the coming months. Elevated input costs are adding to the woes of construction companies.
“Furthermore, there is the possibility that house building activity could be pressurised by extended lacklustre housing market activity and subdued prices amid weakened consumer fundamentals.”
Despite marginal growth in activity & new orders, Oct #PMI does little to inspire confidence #construction sector headed for decent Q4
— Howard Archer (@HowardArcherUK) 2 November 2017
10.30am: BT retreats after initial rise
Away from the Bank of England excitement and in company news, BT Group plc is in the spotlight after reporting its second quarter results.
Shares rose initially as BT maintained its dividend but slipped back 2.63% to 253.65p as investors took a closer look at the quarterly figures.
Profits fell on the costs of rising sports rights while the group is facing a bigger bill to maintain and expand its physical assets and invest in the roll-out of ultra-fast broadband.
“This may go some way to explaining why BT wants clarification on how the costs of the nationwide roll-out of superfast broadband can be recovered,” said George Salmon, equity analyst at Hargreaves Lansdown.
BT hopes to claw back investment in the broadband network update through customers but regulator Ofcom has proposed cutting wholesale prices.
RSA Insurance Group is also on the back foot after taking a £50mln provision for hurricanes in the US and Caribbean and warning that natural disaster costs could rise.
Playtech slumped after the gambling software provider said that its full year performance will be around 5% below the bottom end of market expectations.
Randgold Resources is another top faller after reporting a 41% drop in second quarter profit.
On the upside, Tate & Lyle gained after raising full year guidance following a strong first half.
Howden Joinery jumped after the British kitchen supplier said it was on track to meet full year expectation and reported an 8.2% rise in total UK depots revenue for the 20 weeks to 28 on October.
9.30am: UK construction moves into expansion territory
UK construction activity expanded October but optimism fell to the lowest level in nearly five years, according to the latest data from Markit/CIPS.
The UK purchasing managers’ index for the construction industry rose to 50.8 in October from 48.1 in September, ahead of economists’ expectations of 48.5. Decline in commercial building and civil engineering were offset by solid growth in residential building on strong demand for housing.
A reading above 50 signals an expansion in sector activity while a level below that indicates a contraction.
“Greater house building was the sole bright spot in an otherwise difficult month for the construction sector,” said Tim Moore, associate director at IHS Markit and author of the report.
“Sustained declines in civil engineering and commercial activity meant that large areas of the building industry have become stuck in a rut.”
The index measuring construction firms’ expectations for business activity over the year ahead showed that optimism fell 58-month low in October due to concerns about UK economic prospects and a lack of new projects in the pipeline.
“With the lowest optimism since December 2012, purchasing managers blamed a slowdown in work from commercial clients, vanishing civil engineering projects and an increasing weariness over Brexit for the lack of performance, weak pipelines and slowdown in job hires,” said Duncan Brock, director of customer relationships at CPI.
The pound was flat against the dollar at US$1.3248 and down 0.20% versus the euro at €1.1376.
8.40am: FTSE marks time ahead of BoE
The FTSE 100 marked time at 7,486.97 in opening deals and ahead of the Bank of England’s decision on interest rates – with the vast majority of City economists expecting a quarter-point hike to borrowing costs.
If BoE Governor Mark Carney and his fellow Monetary Policy Committee members vote for the increase, it will be the first time in more than a decade base rates have gone up.
As the Guardian’s Markets Live column pointed out, there is a genuine sense of anticipation in the Square Mile ahead of the midday announcement.
Craig Erlam, market commentator at OANDA, set the scene: “Policy makers will discuss the merits of a rate hike in a bid to prevent inflation moving too far above target - or at least, that's what we're being told despite the acknowledgement that higher inflation is almost entirely down to the one-off currency depreciation that occurred since the Brexit referendum last year.
“Inflation reached 3% in September, far above the central bank's 2% target and at the top of the range that the government deems acceptable before Governor Carney must write a letter to the Chancellor explaining why the central bank is failing to achieve its mandated target.
“Interestingly, this is also around the level that the central bank expects inflation to peak at which begs the question why they've waited so long to raise interest rates.
“Also, why do they now deem it to be the right time to do so before we have a chance to find out how far it will fall again once the initial impact of the currency move falls out of the calculation?”
On the markets BT (LON:BT.) was the early riser as it marched up 3% after the company said it would maintain the dividend despite the headwind of falling quarterly profits.
The precious metals firms were on offer after results from Randgold Resources (LON:RRS) failed to live up to billing.
Proactive news headlines:
European Metals Holdings Limited (LON:EMH) has completed its six core-hole infill drilling programme at the Cinovec lithium-tin project in the Czech Republic and its CEO says the results are “excellent”. The firm’s CEO, Keith Coughlan commented: "We are very pleased that not only have we competed the planned drilling program on time and within budget, but that the results are excellent, in particular with respect to the two infill drillholes on the western part of the Cinovec South deposit.”
Amphion Innovations PLC (LON:AMP) said its wholly-owned business DataTern had its US patent infringement case against MicroStrategy and some of its customers dismissed. The reason for the dismissal was the withdrawal from the case of the firm’s legal counsel and DataTern’s inability to appoint a successor “in the short time frame set by the court”.
ImmuPharma PLC (LON:IMM) confirmed it is on track to publish top-line results from its Phase III clinical trial in the first quarter of next year after it said over half the group had completed the full 12-month study assessing the performance of its potentially breakthrough treatment for lupus. In all 116 of the 200 patients with the life-threatening auto-immune disease have been through the 52-week process looking at the efficacy of Lupuzor; all are now at or past the nine-month stage.
Bacanora Minerals Limited (LON:BCN) (TSXV:BCN) told shareholders today that it has secured access and surface rights for its flagship Sonora lithium project in Mexico. The firm said the move is in line with its strategy to construct an open-pit mine and large-scale beneficiation processing facility at Sonora, which is one of the world's larger lithium deposits.
Ferrum Crescent Ltd (LON:FCR) was also on the back foot after the European lead and zinc explorer announced a placing of shares with directors to raise £185,250. The company intends to use proceeds to support its lead-zinc exploration programme in North West Spain and for general working capital purposes.
Genedrive PLC (LON:GDR) has terminated its agreement with Xcelris after running into further problems with the launch of MTB/RIF tuberculosis tests in India. The London-listed company cut its ties with its commercial partner in India after problems were experienced in assessing the impact of remedial action taken to address a specific sample preparation problem for the rapid molecular test for tuberculosis.
Non-executive director Steve Couldwell has been named as the new chief executive of Tissue Regenix Group PLC (LON:TRX), the regenerative medicines company. Couldwell has more than 25 years of experience in the pharmaceutical and medical device industry.
Event-driven marketing technology firm Mporium Group PLC (LON:MPM) has appointed Aleksander Øhrn as chief technology officer (CTO). He was most recently the co-founder and CTO of Cxense, a position that he held for the past seven years.
The stem cell specialist WideCells Group PLC said it has concluded a revenue-generating deal that will see its unique services sold in the Middle East, North Africa and Asia. First announced on October 11, the binding agreement with White Apex General Trading formally came into effect on Tuesday (Oct 31).
Glycotest, a portfolio company of Netscientific PLC (LON:NSCI), has been allowed a patent in China for its lead product, HCC Panel – a blood test designed to detect early-stage liver cancer. The patent expands the company's existing patent portfolio, which stands at ten previously granted or allowed patents, protecting multiple aspects of its proprietary liver disease diagnostic platform.
Caledonia Mining Corporation PLC (LON:CMCL) has raised its estimate of the mineable gold at Blanket in Zimbabwe by 6%, an upgrade that might extend the mine’s life. Steve Curtis, chief executive, said the improvement underscored the overall confidence level in Blanket's resources.
IronRidge Resources Limited (LON:IRR) has reported multiple gold intersections within trench and soil samples at Echbara in Chad, Central Africa. Further exploration is now planned for Echbara, which is 25km away from IronRidge’s Dorothe prospect in the central African country.
Rambler Metals and Mining PLC (LON:RMM) (CVE:RAB) is back on track with an upgrade to its Ming mine in Newfoundland after crusher repairs. Copper production over the quarter to September dropped 10% to 1,004 tonnes with gold output flat at 930oz.
Eco (Atlantic) Oil & Gas Ltd (LON:ECO, CVE:EOG) told investors it is advancing the Osprey lead, offshore Namibia, towards exploration drilling. The company, in a statement, revealed it is filing for Environmental Clearance Certificate (ECC) for a proposed well. Securing an ECC would represent the key clearance necessary for drilling, it added.
Thor Mining PLC (LON:THR) (ASX:THR) has advised that Paul Johnson, a non-executive director of the firm, is to exercise ten million director options at a price of 1.25p per share raising an additional £125,000 for the company.
Professor Lindy Durrant, chief scientific officer of Scancell Holdings PLC (LON:SCLP) - the developer of novel immunotherapies for the treatment of cancer - has been named as one of the 50 female leaders in UK healthcare business in BioBeat’s ‘50 Movers and Shakers in BioBusiness 2017’ report. Released annually, the report celebrates 50 outstanding women entrepreneurs and business leaders who are recognised for driving innovation in healthcare.
Capital Networks has issued a research report on OptiBiotix PLC (LON:OPTI) with analyst Rccardo Lowi concluding that a rich deal pipeline is likely to translate into material revenue growth for the firm within 12 months.
6.45am: Back foot start
London’s FTSE 100 is set to start Thursday on the back foot, though attentions this morning will be mainly focussed on the Bank of England.
For more than a year the monthly rate meetings have come and gone with no action, but, it is anticipated that will change at midday.
“At lunch time today the Bank of England will have either raised rates for the first time since 2007, or they will have presided over the latest episode of shambolic forward guidance since Mark Carney became Governor of the Bank of England back in 2012,” said Michael Hewson, analyst at CMC Markets.
“They do have previous when it comes to misleading the markets when it comes to rates, but despite the misgivings expressed by two of the newest members of the Monetary Policy Committee, David Ramsden and Job Cunliffe last month it is widely expected that the central bank will reverse the rate cut seen in August 2016 at midday today, albeit the vote is not expected to be unanimous.”
In the United States, the Federal Reserve on Wednesday remained hands off, with its interest rate unchanged, there the rate rise is expected in December.
The market continued to speculate on who the next Fed chair will be, with reports suggesting it will be Jerome Powell. He is seen as the most likely and, according to analysts, the most sensible choice – he is described as the ‘continuity candidate’.
In New York, the Dow Jones closed Wednesday’s trading up 57 points or 0.25% changing hands at 23,435.
The S&P 500 was up slightly, 0.16%, at 2,579 while the Nasdaq moved slightly lower, 0.17%, finishing the session at 6,716.
Asian stocks were mixed. Japan’s Nikkei gained 119 points or 0.53% to 22,539. Hong Kong’s Hang Seng moved 0.13% lower to 28,558 whereas the Shanghai Composite dropped 0.4% to 3,382.
In Australia, the ASX 200 dipped 0.1% to 5,931.
CFD and spreadbetting group IG Markets, meanwhile, expects London’s blue-chip equities will start Thursday lower.
The FTSE 100 is seen down around 23 points, with IG calling the benchmark at 7,462 to 7,466.
In terms of corporate news, Royal Dutch Shell PLC (LON:RDSB) is expected to be the highlight of Thursday morning as it releases an interim results statement.
Thursday's agenda
Bank of England UK interest rate decision
Trading update: BT Group PLC (Q2) (LON:BT.A), Centaminl PLC (LON:CEY), Howden Joinery Group PLC (LON:HWDN), Indivior PLC (Q3) (LON:INDV), Intu Properties PLC (LON:INTU), Lancashire Holdings Limited (Q3) (LON:LRE), Randgold Resources PLC (Q3) (LON:RRS), Royal Dutch Shell PLC (Q3) (LON:RDSA), RSA Insurance PLC (Q3) (LON:RSA), Schroders PLC (LON:SDR), Wm Morrison Supermarkets PLC (LON:MRW)
Interims: 3i Infrastructure PLC (LON:3IN), Tate & Lyle PLC (LON:TATE)
Economic data: UK construction PMI; US weekly jobless claims
No FTSE 100 ex-dividends
Around the markets
Sterling: US$1.3077, down 1.27%
Gold: US$1,279.02, up 0.34%
Brent crude: US$60.38, down 0.18%
Headlines
Letting agent fees will be BANNED – Mirror
UK lags behind dozens of developed countries in WEF gender gap report - The Independent
Powell to Lead Fed Overseeing Trump Economy Fraught With Risks - Bloomberg
Tesla gives wishy-washy outlook for Model 3 production issues - CNNMoney
US SEC Warns Over Crypto ICO's & 'Potentially Unlawful' Celebrity Promotion – Forbes