US stocks and FTSE 100 lower as BoE hikes rates again
A look at how the major markets are performing on Thursday
US stocks, European markets and the FTSE 100 were all in the red on Thursday afternoon as investors digested the latest Bank of England (BoE) decision on interest rates and considered new inflation figures.
The Dow Jones (^DJI) fell 0.46% to 33,377.67 points, while the S&P 500 (^GSPC) dropped 0.31% to 4,124.93 points. The tech-heavy NASDAQ (^IXIC) also declined – by 0.06% to 12,299.22.
FTSE 100 and European markets
Across the pond, the FTSE 100 reversed earlier gains after the BoE’s monetary policy committee (MPC) raised interest rates by a further 25 basis points, taking the bank rate from 4.25% to 4.5%, as expected by the markets.
The FTSE 100 (^FTSE) declined 0.63% to 7,692.55. The CAC 40 (^FCHI) in Paris fell 0.19% to 7,347.31 points – and in Germany, the DAX (^GDAXI) also moved lower, by 0.57% to 15,805.22.
Read more: Bank of England hikes interest rates again as it struggles to tame inflation
Giles Coghlan, chief market analyst, consulting for HYCM, said: “Given that annual inflation remains stubbornly above 10%, today's decision to raise the base rate by 25bps again was almost unanimously anticipated by the markets. With wage growth data coming in hotter than expected a few weeks ago, fears of a wage-price spiral have only grown since March and the economy has not cooled to the extent that Bank of England policymakers will have hoped."
He further commented that core inflation remains sticky at 6.2% year-on-year and said investors should expect rates to go higher in the summer even if headline inflation falls sharply, particularly as the markets are now expecting a terminal rate of 4.85%.
"On a brighter note, the BoE are not forecasting a recession for the UK and have revised GDP up for next year to 0.75% from a prior projected fall of -0.25%,” Coghlan added.
US and Asia markets
In the US, Wall Street traders were also across Producer price increases for April, which came in cooler than expected.
Prices rose 0.2% on a monthly basis and 2.3% on a yearly basis. Economists had expected producer prices to rise 0.3% in April on a monthly basis and 2.5% on a yearly basis, per Bloomberg consensus data. In March, producer prices slipped 0.5% on a monthly basis and rose 2.7% on a yearly basis.
Investors also remained unsettled with the banking sector after PacWest (PACW) disclosed in an SEC filing its deposits fell 9.5% in the first week of May.
Meanwhile, Western Alliance (WAL) shares fell nearly 4% after also providing a deposit update.
Traders were also keeping across the outcome of a G7 finance ministers meeting in Japan after Treasury Secretary Janet Yellen said a US default is ‘unthinkable’ and would rank as a ‘catastrophe.’
In Asia, the major markets were mixed after China’s annual inflation rate hit 0.1% in April, sliding from 0.7% in March and below analysts’ expectations, marking a two-year low amid a bumpy recovery from the pandemic. Meanwhile, producer prices fell 3.6%, the seventh consecutive month of deflation.
Tokyo’s Nikkei 225 (^N225) rose 0.02% to 29,126.72 points, while the Hang Seng (^HSI) in Hong Kong declined 0.77% to 19,609.35. In mainland China, the Shanghai Composite (000001.SS) was also in the red, down 0.29% to 3,309.50 points.
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The pound (GBPUSD=X) declined against the US dollar by 0.75% to 1.25 after the BoE interest rate decision. Against the euro, the sterling (GBPEUR=X) was also down, by 0.03% to 1.14.
Victoria Scholar, head of investment at Interactive Investor, commented: “Sterling rebounded off the day’s lows following the Bank of England’s rate hike, but it remains in negative territory in today’s session against the US dollar.
“The pound had been rallying close to a one-year high this week in anticipation of the central bank’s rate decision and thanks to improved inflation data in the United States, which catalysed weakness for the greenback on Wednesday. Cable (GBPUSD=X)’s gains turned red this morning, although the MPC’s rate hike tempered those declines.”
In commodities, crude prices were back in the green on Thursday.
US crude oil, or West Texas Intermediate (CL=F), rose 0.51% to $72.93 (£57.88) a barrel, while Brent crude (BZ=F) climbed 0.54% to $76.82 a barrel.
The BoE raised UK interest rates to the highest level since 2008 with another 25 basis point increase, which lifts the bank rate to 4.5% from 4.25%.
“Right now, core inflation remains sticky at 6.2% year-on-year and investors should expect rates to go higher in the summer even if headline inflation falls sharply, particularly as the markets are now expecting a terminal rate of 4.85%. On a brighter note, the BoE are not forecasting a recession for the UK and have revised GDP up for next year to 0.75% from a prior projected fall of -0.25%,” Giles Coghlan added.
Meanwhile, US inflation figures released this week showed that it was slightly weaker than forecast in April with consumer price inflation dipping to an annual rate of 4.9%, its lowest level since April 2021. Economists had expected it to remain steady at 5%.
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Wood Group (WG.L) reported first quarter revenue of $1.45bn, rising year-on-year following a weak 2022. Its order book on 31 March hit $5.7bn, declining versus December. The energy and materials engineering company also kept its expectations for 2023 unchanged. However, it warned it is ‘mindful of the uncertain economic outlook.’
Disney (DIS) reported fiscal second quarter earnings which broadly met analysts’ expectations on the top and bottom line. However Disney+ streaming subscribers fell by 4 million, hitting 157.8 million versus expectations for 163.17 million, sending shares down almost 5% after-hours.
“Investors shrugged off a stronger performance in its parks, experiences and products division which enjoyed 17% revenue growth to $7.7bn, mostly thanks to strong sales in its theme parks,” Victoria Scholar said.
Rolls-Royce (RR.L) shares declined on Thursday despite issuing an in-line trading statement, while Vodafone (VOD.L) has announced a partnership with UAE government-owned telecoms company e&.
Elsewhere, the UK’s biggest listed landlord Grainger (GRI.L) said its rental income had grown by 12% in the six months to the end of March, while its profits were up by 2%.
JD Sports (JD.L) has appointed Dominic Platt as its next chief financial officer. He will join the sports retailer from financial services firm BGL Group where he was also CFO.
“Platt will be part of JD Sports’ ambitious growth plans including significant store expansion with £500-600m spending on this a year. Earlier this week, JD Sports announced a proposed acquisition of French trainers brand Courir for €520m, also accelerating its growth strategy,” Scholar commented.
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