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FTSE 100 rises after Bank of England’s rate hike

 

Friday, November 04, 2022

The news shaping the markets today

US Defense Secretary Lloyd Austin said he believes Ukraine’s forces are capable of retaking control of Kherson from Russia’s military forces. US crude oil futures traded higher amid continued uncertainty.


Japan’s composite PMI rose to 51.8 in October, from a flash reading of 51.7 and compared to a final reading of 51.0 in the previous month. The country recording its highest composite PMI since June lent support to the JPY/USD forex pair.


Australia’s retail sales grew by 0.6% to A$35.10 billion in September, following a 0.6% rise in the previous month. The country’s retail trade growing for the ninth straight month sent the AUD/USD pair higher in forex trading this morning.


The ISM services PMI fell to 54.4 in October, from 56.7 a month ago. The figure also came in below market estimates of 55.5 and sent the Dow Jones index lower by more than 100 points on Thursday.


The Philippines announced that its annual inflation rate accelerated to 7.7% in October, from 6.9% in August, higher than market expectations of 7.1%. Despite this, the PHP/USD forex pair recorded some gains.

 

What’s happening: British stocks settled mostly higher on Thursday, following the Bank of England’s interest rate decision.

What happened: London’s FTSE 100 index recorded gains after the Bank of England raised interest rates, although the country’s other major index settled lower on Thursday.

The British pound fell sharply versus the US dollar following a warning from the central bank.

Why it matters: The Bank of England raised its interest rates by 75 basis points, announcing its biggest single increase since 1989. The recent hike sent the BoE’s Bank Rate to 3%, its eighth increase in a row of the main lending rate.

The central bank’s Monetary Policy Committee voted 7-2 in favour of the 75-bps hike, with one member preferring a 0.5 percentage point increase while the other voting for 0.25.

“The majority of the Committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets,” the Monetary Policy Committee said.

Last week, the ECB had also increased its main benchmark rate by 75 basis points, taking it to the highest level since 2009.

UK’s GDP is likely to contract by about 0.75% in the second half of the year. The bank also warned of a prolonged recession, with growth continuing to decelerate through next year and the first half of 2024. Borrowing costs are projected to increase by a lower amount than current market expectations, the BoE said.

The GBP/USD forex pair fell to its weakest level since October 21 on Thursday. The blue-chip FTSE 100 gained 0.62% to close at 7,188.63, while the domestically focussed FTSE 250 declined 0.59% to 18,109.61.

What to watch: Investors await the release of construction PMI and new car sales data from the UK today. The S&P Global/CIPS UK construction PMI, which rose to 52.3 in September, is expected to decline to 51.5 in October.

Markets will focus on Finance Minister Jeremy Hunt’s fiscal announcement on November 17. The release of some major economic reports from the Eurozone could also move London stocks today.

The markets today

The US NFP report, the most market-moving data release, will be in focus today

Context: The Bureau of Labor Statistics is set to release the jobs report for October today.

Details: The state of the US labour markets remains uncertain, with inflation hitting multi-decade high and the Federal Reserve continuing to hike interest rates aggressively.

Some leading indicators, including ISM, ADP and jobless claims, are used to assess the monthly US jobs report.

The ISM services PMI employment component declined to 49.1 in October, from 53.0 a month ago, entering the contraction zone. The ISM manufacturing PMI employment component improved to 50.0 last month, from 48.7 in September.

The ADP Employment report showed the addition of 239,000 private jobs, while the four-week moving average of initial jobless claims rose to 219,000, compared to last month’s reading of 207,000.

The leading indicators signal slightly better-than-expected data on nonfarm payrolls for October.

The US dollar index, which measures the greenback’s performance versus major rivals, had ranged between 109.50 and 113.50 last month, with markets assessing the current state of the economy and stance of the Federal Reserve.

The dollar index rose sharply by 1.4% to 112.93 on Thursday, responding to the US central bank’s rate hike of 75 basis points.

Wall Street closed lower, ahead of the key jobs report, with the Dow Jones index declining by 0.46% to 32,001.25 and the S&P 500 down 1.06% to 3,719.89.

What are expectations: The US economy, which added 263,000 jobs in September, is expected to add 240,000 jobs in October. Analysts expect the US unemployment rate to remain unchanged at 3.5% in October. Average hourly earnings of all employees on private nonfarm payrolls are projected to increase 0.3%.

Other Markets: European trading indices closed lower on Thursday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.95%, 0.54% and 0.93%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 0.9756 and 0.9769 Positive
AUD/USD – 0.6295 and 0.6311 Positive
Gold – 1633.14 and 1637.74 Positive
Nikkei 225  – 27066.16 and 27125.16 Positive
Dow Jones – 31931.62 and 32131.79 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9764, 0.13%) Dow ($32,004, -0.04%) Brent ($95.16, 0.5%)
GBP/USD (1.1206, 0.42%) S&P500 ($3,729, 0.02%) WTI ($88.65, 0.5%)
USD/JPY (148.10, -0.13%) Nasdaq ($10,748, 0.19%) Gold ($1,638, 0.4%)

What else to watch today

Germany’s factory orders, services PMI and composite PMI, France’s industrial production, payroll employment in the private sector, services PMI, composite PMI and car registrations, Spain’s industrial production, services PMI, composite PMI and consumer confidence indicator, Italy’s services PMI, composite PMI and new passenger car registrations, China’s current account, Eurozone’s services PMI, composite PMI and producer prices, India’s foreign exchange reserves, value of loans, value of deposits and balance of trade, Canada’s unemployment rate, employment change and Ivey Purchasing Managers Index, Brazil’s services PMI and composite PMI, as well as US Baker Hughes crude oil rigs.


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