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FTSE 100 closes higher as central bank interest rate decisions hearten markets

The UK blue chip index closed the day up 42.37 points at 7,256.42, while the FTSE 250 added 35.03 points at 20,089.46

BoE governor Mark Carney
The Bank of England monetary policy committee voted unanimously to leave interest rates at 0.75%
  • FTSE 100 ends 42 points higher
  • BoE leaves monetary policy unchanged 
  • US stocks higher after Fed rate cut on Wednesday

5.10pm: Positive finish for Footsie 

The FTSE 100 index closed higher on Thursday with traders upbeat in the wake of an interest rate cut by the Fed on Wednesday night and after the Bank of England, as expected, caused no ruffles with its unchanged monetary policy decision.

The UK blue chip index closed the day up 42.37 points at 7,256.42, while the FTSE 250 added 35.03 points at 20,089.46. On Wall Street, around London's close, the Dow Jones Industrial Average added 93.13 points at 27,240.21, while the S&P 500 index gained 12.16 at 3,018.89.

The UK central bank policy committee voted unanimously to leave interest rates at 0.75% and its asset purchase programme at £435bn on Thursday.

The US central bank last night made an as anticipated quarter-point rate cut, citing “the implications of global developments for the economic outlook as well as muted inflation pressures” even though the US economy continues growing at a “moderate” rate and the labor market “remains strong”.

"The Fed have lowered rates twice in three months, which adds to the global move by central banks - who have largely loosened monetary policy this year," noted David Madden, analyst at CMC Markets.

He added: "Today, the Bank of England (BoE) maintained their monetary policy, meeting trader’s expectations’. Mark Carney, the BoE chief, reiterated the view that if there is a smooth Brexit, the BoE are likely to hike rates, which paints the UK economy in a positive light."

3.50pm: Supreme Court hearing wraps up

The second day of the Supreme Court hearing on whether Boris Johnson broke the law in his decision to prorogue parliament for five weeks has just wrapped up.

The president of the Supreme Court, Lady Hale, said the court would rule on the proceedings as soon as possible. 

The court is expected to announce its decision early next week. 

The government has argued the suspension of parliament is not a matter for the courts but opponents say the prime minister is trying to stop MPs from thwarting his Brexit plan. 

3.20pm: US existing homes unexpectedly rise

US existing homes sales rose to a17-month high in August, according to the National Association of Realtors.

Sales rose 1.3% to 5.49mln in August, surprising analysts that expected a 0.7% drop and following a 2.5% gain in July.

Lower borrowing costs gave home buyers a boost throughout most of the summer.  The Federal Reserve cut interest rates for the second time this year on Wednesday. 

Existing home sales make up about 90% of U.S. home sales.

2.40pm: US stocks open in positive territory 

US stocks have opened higher as traders continue to digest yesterday’s remarks from the Federal Reserve after the central bank cut interest rates.

The Dow Jones Industrial Average rose 73 points to 27,220, the S&P 500 increased 8 points to 3,015 and the Nasdaq gained 32 points to 8,209.

The Federal Reserve cut interest rates by 25 points but declined to signal if it would drop rates in the future. It also revealed that policymakers were split on where to set rates with seven out of 10 voting in favour of the cut, two opposed to it and one arguing for a larger half-point reduction.

On the company front, Microsoft Corp led a rally of tech shares after saying it would hike its quarterly dividend by 11% and had approved a US$40bn share buyback programme.

1.45pm: US weekly jobless claims rise less than forecast

US jobless claims rose less than expected last week, according to the Labor Department. 

Initial claims for unemployment benefits increased 2,000 to a seasonally adjusted 208,000 for the week to 14 September. Analysts were expected a rise of 214,000 for the week. 

The previous week's reading was revised to show 2,000 more applications than initially reported. 

The four-week moving average of initial claims, considered a better measure of labour market trends, fell 750 to 212,250 last week.

The data, which pointed to stronger labour market conditions, comes after the Federal Reserve cut interest rates by 25 basis points citing risks to the economy including a US-China trade war and slowing global growth. 

1245pm: 'Doves will win out' in no-deal Brexit scenario 

Pantheon Macroeconomics economist Samuel Tombs said while the Bank of England did not formally revise down its economic growth forecast, its minute meetings gave the “impression that its base case has changed from one of a Brexit deal being agreed in the near future, to long-lasting Brexit uncertainty”.

“Nonetheless, the Committee still is in wait and see mode and it is not going to take pre-emptive action,” he said.

He added that the minutes lacked guidance on the Bank’s likely response to a no-deal Brexit with some policymakers saying a rate cut would be necessary while others arguing that patience should be exercised.

“Our view remains that the doves would win out and Bank Rate would be cut to 0.50% in the first meeting after no-deal, 0.25% in the second and 0.05% in the third, but with the Committee split, much will depend on if Mr. Carney has been replaced by then,” Tombs said.

12.35pm: BoE: Move on nothing to see here, say analysts 

Bank of England has delivered no surprises in its policy statement and meeting minutes, according to analysts. 

David Cheetham, chief market analyst at XTB, said:  "All in all this latest message is very much in keeping with what was expected and as such the market reaction has been minimal," 

"Governor Carney and his fellow MPC continue to toe a fairly hawkish line with suggestions that they would be considering higher rates were it not for political uncertainty but we don’t expect any significant moves on the policy front while Brexit continues to loom large on decision makers’ minds. "  

Artur Baluszynski, head of research at Henderson Rowe, said: “Absent currency or balance of payments crisis, we just don’t see the Bank of England even considering raising rates anytime soon.

"Cuts are increasingly likely due to the prolonged uncertainty around Brexit. In fact, considering how sensitive the UK banking system is to softening house prices, we wouldn't be surprised if the Bank of England gets ahead of the curve.”

And from Markets.com's Neil Wilson:

12.15pm: BoE warns on impact of Brexit delay

Minutes from the Bank of England's policy decision warned: "It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union.

"The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced."

It said Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in the second quarter of this year and now expected to rise by 0.2% in the third quarter.

"Brexit uncertainties have continued to weigh on business investment, although consumption growth has remained resilient, supported by continued growth in real household income. The weaker global backdrop is weighing on exports," the Bank said.

The BoE said the wider global economy has been hit by concerns about a trade war between the US and China and a weaker outlook, leading other central banks to loosen policy.

The Federal Reserve cut rates for a second time since 2008 on Wednesday while the European Central Bank last week lowered its deposit rate and said it would restart bond purchases.

The pound is now down 0.21% versus the dollar at US$1.2446 and down 0.51% against the euro at €1.1250 following the Bank's remarks that it expects the currency to fall in the event of a no-deal Brexit.

12.05pm: Bank of England stands pat on rates 

Bank of England policymakers have voted unanimously to leave interest rates at 0.75% and the asset purchase programme at £435bn, as expected.

On the outlook, the Bank said: “In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow.

“The Committee’s interest rate decisions would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand.

“In this eventuality, the monetary policy response would not be automatic and could be in either direction.”

In the event of a smoother Brexit and some recovery in global growth, the Committee said it judges that “increases in interest rates, at a gradual pace and to a limited extent, would be appropriate” to return inflation sustainably to its 2% target.

The Bank added: "In all circumstances, the Committee will set monetary policy appropriately to achieve the 2% inflation target. The MPC judges at this meeting that the existing stance of monetary policy is appropriate."

11.50am: Banks gain after Fed sets higher bar to further rate cuts

Shares in FTSE 100 banks gained after the US Federal Reserve lowered interest rates for the second time this year but signalled it would hold back on further cuts.

Lloyds Banking Group PLC (LON:LLOY), Royal Bank of Scotland Group PLC (LON:RBS) HSBC Holdings PLC (LON:HSBA) and Barclays PLC (LON:BARC) were all higher.

In an unexpected move, the Fed set a higher bar to any further rate cuts.

“The last thing that banks in particular want is further aggressive easing from central banks,” said CMC Markets analyst Michael Hewson.

The attention now turns to the Bank of England’s rate decision out shortly.

11.40am: Sirius Minerals shares fall again 

In more serious news, shares in Sirius Minerals PLC (LON:SXX) have fallen another 2.3% to 4.3p following Monday's announcement that it would pull a US$500mln bond issue.

Shore Capital analysts remained positive about the stock, although they the house brokers.

"Although undoubtedly disappointing, we see the recent setback as an opportunity to put in place a better funding structure than that previously mooted for the paradigm-shifting North Yorkshire polyhalite project in England," they said. 

"Our most favoured scenario would be a combination of strategic partner, infrastructure finance and project debt to cover the next two years’ capex requirements."

10.50am: Moverrs and shakerrs 

Today is international pirates day (according to Twitter) so here are some of the big moverrrrs and shakerrrs me hearties: 

Kier Group PLC (LON:KIE) shares dropped 2% as its chairman walked the plank after the construction firm slumped to a full-year loss. (Read the full story on Kier results here.)

Next PLC (LON:NXT) continued to sink, down nearly 4%, as investors thought "shiver me timbers" after boss Lord Wolfson said a warm start to September has dragged on sales of its winter ranges. (Read the full story on Next results here.)

In contrast, IG Group Holdings PLC (LON:IGG) shares were yo ho ho and up she rises 8% as it said it added more clients and saw improved trading activity in August after tighter regulation caused mutiny for spreadbetters. 

Charles Taylor shares were hoisted up 37% after the British insurance services firm agreed a £261mln deal to be taken over by a company backed private equity firm Lovell Minnick Partners. (More on Charles Taylor here.)

10.15am: OECD cuts global growth forecast

The Organization for Economic Cooperation and Development (OECD) has cut its global growth forecast for the next two years, pointing to US-China trade tensions and Brexit.

The agency lowered its estimates of global GDP by 0.3 percentage points to 2.9% this year and by 0.4% to 3.0% next year. 

The OECD predicts UK GDP to fall to 0.9% from 1% this year, down 0.2 percentage points from its May forecast. It warned that a no-deal Brexit would slice nearly 3% from Britain's economic growth over the next three years compared to just 0.6% from the rest of the EU. 

Laurence Boone, the OECD’s chief economist, said: “The best thing is to avoid a no-deal Brexit and to stay closely aligned to the EU as possible,” she said.

For the US, the OECD reduced its estimates for US growth by 0.4 points in 2019 to 2.4% amid worries about a trade dispute between Washington and Beijing. 

9.40am: UK retail sales fall in August

Retail sales dropped in August as subdued consumer confidence and tough online competition continued to hurt businesses on the high street. 

The Office for National Statistics revealed retail sales, excluding fuel, fell 0.3% month-on-month in August, as expected, after a 0.4% rise in July.

Compared to a year ago, sales excluding fuel rose 2.2%, missing forecasts of 2.3% and slowing down from the 3.1% annual growth rate reported in July. 

Including fuel, retail sales dropped 0.2% month-on-month and rose 2.7% year-on-year, against expectations of zero growth and a 2.8% increase respectively.  In July sales including fuel advanced 3.4% on the year and 0.4% on the month.

"The modest fall in the retail sales volumes in August doesn’t change the overall picture of solid momentum in households' spending," said Samuel Tombs. chief UK economist at Pantheon Macroeconomics.

"The drop primarily reflects mean-reversion in non-store sales, following a big boost in July triggered by Amazon’s Prime Day."

 He added: "Looking ahead, the recent deterioration in leading indicators of employment and wage growth has cast doubt over whether consumers can maintain strong growth in the spending next year."

8.40am: Muted start for FTSE

The FTSE 100 made a muted start to proceeding following some mixed messaging from the US Federal Reserve and worries over the liquidity of the world largest economy.

The US central bank made its expected quarter-point cut, but the fact that it provided additional short-term funding for the first time since the financial crisis was enough to get the markets in a flap.

A lack of unanimity among the Fed members on whether to cut rates added to the confused messaging, analysts said.

“The Fed is steering a tricky course. At the heart of the matter is the conundrum of full employment and steady inflation in the US versus the risks from trade wars and the deterioration in the global economy. And so we’ve got the Fed cutting now to fit the market narrative,” said Neil Wilson of Markets.com.

Confirming the old stock market adage that it is often better to travel than arrive, clothing chain Next PLC’s (LON:NXT) shares succumbed to profit-taking after it maintained guidance for the year.

That’s no mean feat given the difficult backdrop for the retail sector.

Next’s shares have bucked the trend and have advanced around 45% since in the year to date.

The stock off 4% in early trade. Associated British Foods (LON:ABF), owner of the Primark budget chain, fell 2%.

Proactive news headlines

The City Pub Group PLC (LON:CPC) has reported an almost 20% rise in profits for its first half as it shifted its focus toward developing its pub estate and improving dividends for investors.

Jersey Oil and Gas PLC (LON:JOG) confirmed it has landed new acreage from the UK government’s 31st supplementary offshore licensing round.

Diversified Gas & Oil PLC (LON:DGOC) has confirmed the completion of its acquisition of assets from EdgeMarc Energy Holdings, including twelve Utica gas wells and related facilities.

Clinigen Group PLC (LON:CLIN) said its international platform was taking shape to support higher organic growth as it said profits advanced by a third in the first half.

IronRidge Resources Ltd (LON:IRR) said it has received positive air-core drilling results for its Bianouan gold licence in Côte d'Ivoire.

hVIVO PLC (LON:HVO) said it is primed for profitability next year. The projection was made alongside interim results that revealed £11mln of costs have been extracted from clinical development services business since 2017.

Renewable power provider SIMEC Atlantis Energy Limited (LON:SAE) said it achieved its best-ever operating results at its MeyGen tidal power project. Revenue for the first six months of the year increased to £2mln from £1.3mln the year before, with the majority of the revenue coming from MeyGen power sales.

In Sound Energy PLC’s (LON:SOU) half yearly results the company told investors that it continues to expect completion of monetisation efforts for its Eastern Morocco portfolio before the end of 2019.

Argo Blockchain PLC (LON:ARB) has installed 1,000 new cryptocurrency mining machines, taking the total number in production to 6,000.

Pharm2Farm, one of Braveheart Investment Group PLC’s (LON:BRH) investee companies, has reported good results from a basil-growing trial in Korea.

Red Rock Resources PLC (LON:RRR) expects to receive official confirmation of the grant of licences for its mineral assets in Kenya soon.

Copper explorer Asiamet Resources PLC (LON:ARS) expects proposed upgrades to bridges and roads in Central Kalimantan in Indonesia to take a chunk out of transport costs at its BKM project.

Anglo African Oil & Gas PLC (LON:AAOG) has received another payment of US$600,000 from the Congolese national oil company.

Kodal Minerals PLC (LON:KOD) said an environmental and social impact assessment (ESIA) for its Bougouni lithium project in southern Mali is progressing as planned.

Cabot Energy plc (LON:CAB) has agreed to raise US$350,000 of funds through a share sale to partner and major shareholder High Power Petroleum LLC (H2P).

Verona Pharma PLC (LON:VRP) will present positive interim data from a Phase 2 trial with its dry powder inhaler formulation of ensifentrine in chronic obstructive pulmonary disease at the European Respiratory Society International Congress a week on Sunday. As announced in March, the magnitude of improvement in lung function and duration of action were highly statistically significant and support twice daily dosing of ensifentrine for the treatment of COPD. 

6.45am: FTSE 100 to open in reverse gear 

London’s FTSE 100 is set to start Thursday on the back foot as markets continue to digest ‘clouded’ signals from the US Federal Reserve last night.

IG Markets sees the London index down about 22 points, making the spread 7,296 to 7,299.

A squeeze in funding costs sparked worries over short-term liquidity in the United States. The central bank increased the availability of short-term funds for the first time since the 2008 financial crisis.

At the same time, the Fed also cut interest rates by 25 basis points as expected to 1.75%.

The rate cut wasn’t unanimous – two bankers voted against, whilst one wanted a deeper cut - Donald Trump responded in social media by calling out the bankers.

“A number of reasons have been cited for the squeeze in funding costs, including the settling of quarterly tax bills, as well as the settlement of US$78bn of US treasury notes,” said Michael Hewson, analyst at CMC Markets.

“With bank reserves also quite low and triple witching settlements due later this week, questions are being asked as to whether this spike in short term rates is a symptom of something more sinister with respect to the plumbing of the US financial system.

He added: “If the stresses in the system subside over the next few days, and short-term rates fall back, then these concerns should subside. If not, it raises some important questions as to why US funding markets aren’t working as they should.”

Wall Street stocks were somewhat mixed at Wednesday’s close. The Dow Jones ended up 36 points or 0.13% at 27,147 whilst the S&P 500 was only a sliver higher finishing at 3,006 and the Nasdaq marked a negative close, down 0.11% at 8,177.

In Asia, Japan’s Nikkei rose by 123 points or 0.56% to trade at 22,0984 and Hong Kong Hang Seng was down 1.37% at 26,395. The Shanghai Composite lowered by 0.11% to 2,983.

Around the markets

Pound: US$1.2475, up 0.02%

Gold: US$1,496 per ounce, down 0.75%

Brent crude: US$63.71 per barrel, down 1.3%

Bitcoin: US$9,893, down 3.37%

Headlines

Federal Reserve intervention in repo market a step towards more QE – Financial Times

Booking.com still duping customers, says watchdog – BBC News

Airbus scraps its A380 as it decides size isn’t everything – The Times

Burger King removes all plastic toys from kids meals – Sky News

Consumers' credit card spending 'overtakes cash' – BBC News

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