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(Alliance News) - The FTSE 100 was kept in check on Thursday as sterling took off after the Bank of England reassured investors it is unlikely to cut rates anytime soon.
"Negative interest rates were the name of the game this Thursday, with the pound (ahem) banking on Andrew Bailey holding off on making them part of his arsenal," SpreadEx analyst Connor Campbell said.
The Bank of England's Monetary Policy Committee voted unanimously to keep the Bank Rate at 0.1%. The nine-strong committee also voted to maintain the total target stock of asset purchases at GBP895 billion.
The pound was quoted at USD1.3659 at the London equities close, up from USD1.3651 at the close Wednesday, and was seen as high as GBP1.3697 shortly after Governor Bailey's press conference started.
And with the central bank expecting growth to recover as the NHS vaccine rollout takes effect, in a half a year's time the need for negative rates may not even exist.
Campbell continued: "As one final reassurance for the sterling, governor Andrew Bailey - and noted negative rates sceptic - put it thusly: 'My message to the markets is this: you really should not try to read the future behaviour of the MPC from these decisions and these actions we're taking on the toolbox.' In other words, negative rates remain low down on the list of policies Bailey is willing to use."
"The pound's surge of relief took the wind out of the sails of the FTSE, which was left to hover unchanged at 6,500," Campbell added.
The FTSE 100 index lost 4.10 points, or 0.1%, to close at 6,503.72. The FTSE 250 ended up 56.86 points, or 0.3%, at 20,809.30. The AIM All-Share closed up 5.12 points, or 0.4%, at 1,204.07.
The Cboe UK 100 ended flat at 646.41, the Cboe UK 250 closed up 0.2% at 18,315.50, and the Cboe Small Companies ended up 0.4% at 12,371.26.
In Paris, the CAC 40 ended 0.8% higher, while the DAX 30 in Frankfurt advanced 0.9%.
The UK's central bank kept interest rates on hold on Thursday as it juxtaposed tighter virus restrictions in the UK with good progress on the mass vaccine programme.
In addition, the central bank said UK lenders would need at least six months to prepare for any cut in rates to negative territory.
Hinesh Patel, portfolio manager at Quilter Investors, said: "While the market pricing for negative interest rates has persisted for some time, today the Bank of England has quashed the idea of rates going sub-zero, at least for now. We would have to see significant economic weakening in the UK for them to become a reality, and with inflation expected to tick up as the year goes on, the BoE can't afford to sink sterling as we get back into recovery mode."
The BoE pointed to Covid-19 vaccination programmes which are underway in a number of countries, including the UK, which have improved the global economic outlook. However, the central bank highlighted that global activity has been adversely affected by an increase in Covid cases, including from newly identified strains of the virus and the associated reimposition of tighter restrictions.
Quilter's Patel continued: "Importantly, the BoE will be watching the unemployment rate closely, particularly given we should begin to see the roadmap emerging for how the furlough scheme and business rates exemptions get withdrawn. The unemployment rate without furlough will be running well above 10%, and this could easily go higher, so the bank needs weapons in its arsenal if it is to continue tackling this crisis.
"That said, there are reasons to be optimistic as a UK investor. With the hugely successful vaccination drive and supply issues being overcome, it's not unrealistic to believe the second half of the year will produce the return of consumer confidence. With recent economic data also beating estimates of late, it could be that we are past the point of peak pessimism."
The UK's high-street lenders were taking the central bank update in their stride.
NatWest finished at the summit of the blue chip index, up 5.7%, while Lloyds advanced 5.5%, Barclays 3.0% and HSBC 1.9%.
At the other end of the FTSE 100, Unilever ended the day's worst performer, losing 6.2%. The consumer goods giant posted an annual earnings fall, with revenue falling short of expectations, hurt by currency movements in its fourth-quarter.
For 2020, Unilever posted revenue of EUR50.72 billion, down 2.4% from USD51.98 billion in 2019. Revenue just missed forecasts of EUR50.81 billion. On a constant currency basis, however, revenue was up 3.5% in 2020.
Annual pretax profit fell 3.5% to EUR8.00 billion from EUR8.29 billion, though like revenue, it rose at constant currency, by 3.9%.
For the whole of 2020, underlying sales growth was 1.9%, in line with expectations.
Looking ahead, Unilever said it will aim for underlying sales growth ahead of its markets, delivering growth in the range of 3% to 5%, as well as profit growth ahead of sales growth.
Shell 'A' shares gave back 2.0%, while the 'B' shares lost 2.1%, after the oil major joined peer BP in swinging to a hefty annual loss.
For 2020, Shell swung to a loss attributable to shareholders of USD21.68 billion from a profit of USD15.84 billion in 2019. Adjusted earnings were USD4.84 billion, down 71% from USD16.46 billion - missing consensus forecasts for USD5.05 billion.
For the fourth quarter alone, Shell swung to a loss attributable to shareholders of USD4.01 billion from a USD965 million profit in 2019.
Free cash flow for 2020 was USD17.63 billion, down 12% from USD20.1 billion in 2019. Net debt increased by USD1.9 billion to USD75.4 billion in the fourth quarter, hurt by lower free cash flow, including a small working capital outflow.
Shell slashed its fourth quarter payout 65% to USD0.1665 from USD0.47. Its annual dividend was down 65% to USD0.6530. However, Shell expects that the first quarter dividend will be USD0.1735.
BP shares closed down 1.3%.
Brent oil was quoted at USD58.55 a barrel at the London close, down from USD58.64 at the close Wednesday.
In the US, Wall Street was in the green at the London equities close. The DJIA was 0.9% higher, while both the S&P 500 index and the Nasdaq Composite were up 0.7%.
The euro stood at USD1.1976 at the European equities close, down from USD1.2022 late Wednesday. Against the yen, the dollar was trading at JPY105.44, versus 105.05 late Wednesday.
Gold was quoted at USD1,788.70 an ounce at the London equities close, lower against USD1,835.90 late Wednesday.
A quiet economic calendar on Friday is headlined by the nonfarm payroll data in the US, due at 1330 GMT. Analysts predict that the economy created about 50,000 jobs in January, while the unemployment rate remained unchanged at 6.7%.
ThinkMarkets analyst Fawad Razaqzada said: "Traditionally, this monthly jobs report has been one of, if not the biggest, data release in terms of its impact on the markets. But over the past several months, this has been largely ignored by markets as all investors cared about were more stimulus and optimism surrounding the vaccine developments.
"But now that the Covid vaccines are being rolled out, investors will be paying closer attention to data as they anticipate the Fed's next move. Although tapering QE is still a few quarters away at the earliest, if we start to see consistent improvement in US data then this will only raise speculation over a quicker start to Fed's balance sheet normalisation process. So, going forward, the NFP reports are likely to be scrutinised closely once again."
Razaqzada noted the pre-NFP leading indicators were all better-than-expected and with the services sector employment component looking "quite rosy", which he said leads him to believe "there is a good chance we could headline NFP come in sharply above expectations".
Earlier in the day there is a German factory orders reading at 0700 GMT.
The UK corporate calendar has full-year results from Lloyd's of London insurer Beazley and a trading statement from online travel agent On the Beach Group.
By Paul McGowan; paulmcgowan@alliancenews.com
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