Friday, June 19, 2020

Investors Unimpressed with Bank of England’s Moves

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News shaping
the markets today

     

What’s happening: British stocks fell on Thursday despite the Bank of England adding an extra £100 billion into the economy.

What happened: The Bank of England announced yesterday the expansion of its bond buying program by £100 billion pounds to support the country’s economy from the impact of the coronavirus crisis, bringing the value of the bank’s APF (Asset Purchase Facility) to £745 billion.

The central bank also left its main lending rate unchanged at 0.1% and gave a more positive economic forecast than it had done in May. Despite these moves, investors were not pleased.

Why it matters: The British economy is struggling to recover from a significant 25% contraction in March and April due to lockdowns imposed by the government to slow the spread of the pandemic.

The Bank of England has lowered interest rates twice from 0.75% since the beginning of the covid-19 outbreak. The central bank has, however, decided to not take rates into negative territory, keeping them steady at 0.1%.

Although the central bank added to its bond-buying program, the pace of asset purchases has slowed, exerting pressure on UK indices trading yesterday. Bank of England Governor Andrew Bailey indicated that the decision to lower the pace was taken due to signs of recovery in the British economy and some stabilisation of the financial markets.

London’s FTSE 100 fell 0.47% on Thursday. The commodity-heavy index has recovered over 25% from the pandemic-related sell-off in March.

Among individual stocks, shares of Taylor Wimpey declined around 6% after the homebuilder announced plans to raise £522 million in a share sale. Carnival Corp’s shares were down around 1% after the company reported a net loss of $4.4 billion in its latest quarter. Prudential’s shares bucked the trend and rose more than 3% after the company announced plans to sell a stake in its US business for $500 million.

What to watch: Markets await retail sales data from the UK, which dipped 18.1% in April and is expected to grow 5.7% in May.

Investors will continue to keep an eye on coronavirus numbers, with the UK being the fifth worst affected nation in the world from the pandemic. Britain has reported more than 301,930 confirmed cases and around 42,370 deaths.

The Markets Today

     

Crude oil will be in focus today, after closing higher in the previous session.

Context: Crude oil settled higher on Thursday following signs of an improvement in fuel demand, despite concerns of another wave of covid-19 infections. Traders were also pleased with the JMMC (Joint Ministerial Monitoring Committee) of the OPEC (Organization of the Petroleum Exporting Countries) stressing on the importance of total compliance with planned output cuts.

Details: Earlier this month, the OPEC+ (OPEC and its allies) had agreed to extend production cuts of 9.7 million bpd (barrels per day) through July and announced plans to monitor compliance among member nations on a monthly basis.

On Thursday, the JMMC pegged its compliance rate at 87% for production cuts in May and reiterated the importance of all participating nations reaching 100% of their planned cuts. The JMMC is scheduled to hold its next meeting on July 15.

The rebound in crude prices comes despite a rise in coronavirus cases in some states of the US. Arizona, Florida and California reported their all-time high cases on Thursday. Beijing also witnessed a new outbreak of covid-19, prompting the Chinese authorities to raise their emergency response level.

WTI (West Texas Intermediate) crude for July delivery gained 2.3% to end at $38.84 per barrel on the NYMEX (New York Mercantile Exchange). Brent oil for August rose 2% to $41.51 a barrel on Thursday.

July natural gas closed mostly unchanged at $1.638 per million British thermal units, after the EIA reported a rise of 85 billion cubic feet in domestic supplies of natural gas for the week ended June 12.

What to watch: Markets are hopeful of all OPEC+ countries complying with the planned output cuts to support crude oil prices. Traders also await the crude oil rig count report from Baker Hughes today. US crude oil rigs fell to 199 in the June 12 week, down from 206 in the prior week, according to Baker Hughes.

Other Markets: US indices trading closed mixed on Thursday, with the S&P 500 and Nasdaq 100 up by 0.06% and 0.33%, respectively. The Dow Jones index declined, however, by 0.15%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s producer prices, Eurozone’s current account, Italy's current account, Saudi Arabia's annual inflation rate, UAE’s inflation rate, Canada’s retail sales as well as the US current account.