* STOXX hits new peak, up 0.2%
* Strong results provide support
* BoE keeps stimulus, signals future tightening
* U.S. stock futures inch up
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NO SURPRISES FROM BOE, NO MOVE ON THE FTSE (1144 GMT)
No BoE policy changes were expected and the central bank
delivered just that, keeping the size of its bond-buying
programme unchanged and holding its benchmark interest rate at a
historic low of 0.1%.
Unsurprisingly, the UK's top FTSE 100 equity benchmark was
little affected and was last trading down 0.2% on the day,
pretty much at the level where it was before the decision.
"With so many economic unknowns still present, it's no
wonder the MPC has chosen to keep the wheels spinning and will
wait longer to start putting the brakes on," said Hinesh Patel,
portfolio manager at Quilter Investors.
"Inflation may well have breached the Bank's target for two
months in a row now, but the Bank still interpret this bout of
price increases as being transitory," he added.
The BoE however signalled future tightening, notably by
saying it would start reducing its stock of bonds when its
policy rate reaches 0.5%.
Focus now shifts to Governor Bailey's press conference.
Here's a snapshot of the FTSE.
WHAT TO WORRY ABOUT WHEN THE SUMMER'S OUT (1052 GMT)
With markets at previously unseen levels, there is a sense
of unease creeping in as investors begin to ponder what could
stop this record-breaking run once the earnings euphoria gives
way to a range of worries from taper to inflation.
Plenisfer portfolio manager Marco Mencini puts it this way:
"The only certainty is the uncertainty that will characterize
the next phase in markets". He believe three risk factors will
have to be dealt with after the summer holidays.
1) MARGINS: "The expected expansion of sales seems to be
already priced in... estimates however do not factor in the rise
in production costs linked to inflationary pressures, which
could squeeze margins, bringing them back below expectations"
2) TECH: "Results were better than expected, but guidance on
future developments was missing. Tech certainly remains
interesting but at one point the pandemic-related boost will
fade and it will have to go through a phase of normalisation"
3) CYCLICALS: "They haven't surprised and questions related
to the pandemic emergency are being raised. Are we in a scenario
of normalisation... or will the economy experience stop-and-go
phases? By its nature the sector is also more exposed to margin
compression linked to inflationary pressures"
Mencini believes we're heading into a new phase which could
last 6 to 12 months and where performance could swing between a
fall of 5% and a gain of 10%. Against this backdrop, stock
picking will be even more crucial, he adds.
UK STOCKS, TIME ALREADY TO LOOK ELSEWHERE? (0939 GMT)
UK stocks have done quite well so far this year not last
spurred by a fresh wave of dealmaking but relative to other
country benchmarks they haven't exactly stood out, and for BofA
Global Research it's already time to look elsewhere.
BofA's Milla Savova in fact has just downgraded British
equities by one notch to marketpefrom, telling clients they
should instead remain overweight and Spain, Italy and Germany.
"We expect the Euro area PMI to remain close to current
levels for the remainder of Q3 followed by a fade into year-end.
We are also positioned for renewed bond yield upside," she says.
Savova anticipates a 5% outperformance for Spain and Italy,
and 4% for Germany. Her argument for the UK centres around
expectations for energy, a key driver of UK equities.
"UK equities tend to outperform in periods of GBP weakness,
energy sector strength and outperformance by defensives. The
balanced trajectories we expect for energy and cyclicals versus
defensives imply little upside for UK equities over the coming
months," she argues.
Meantime, Frederique Carrier, head of investment strategy at
RBC Wealth Management, believes there is no reason to change
their market weight position on UK stocks.
"There has been a flurry of activity in UK and that is
because valuations are so cheap. It doesn't necessarily make for
a more attractive equity market," she said.
"There is really a lack of catalysts for equity investors.
Fiscal stimulus has happened, Brexit - not talked about much in
the media - but it is putting a cap on growth," she added.
The chart shows that MSCI UK has risen almost 11% year to
date but lags behind Germany, Italy, Switzerland and France.
(Danilo Masoni and Sruthi Shankar)
A FRESH RECORD EVERYDAY (0809 GMT)
A batch of strong results lifted European stocks, which hit
record highs everyday this week, putting the pan-European index
on track for its best week in three months.
The STOXX 600 is up 0.2% with tech and industrials
indexes leading the pack up 0.8% each.
Nivea maker Beiersdorf offers a 'handsome' beat,
with shares set for their best day in 9 months, while Siemens
shares are up 4% after the company raises profit
guidance and CEO says the engineering and tech company can
handle raw material price hikes.
Capping the gains, retailers are down 1.1% with
Zalando falling to the bottom of the STOXX after
disappointing Q2 results.
In the UK, London's FTSE 100 eases, weighed by heavyweight
bank stocks, ahead of BoE's rate meeting.
A TIME TO TAPER (0715 GMT)
Earlier this week, the Reserve Bank of Australia didn't
blink and stuck with plans to taper bond-buying stimulus next
month. But the Bank of England today is unlikely to say it
judges the economy strong enough to stomach an early end to its
875 billion-pound stimulus.
Two BOE policymakers have broken ranks to suggest
bond-buying should end soon. Yet the bank will be mindful that
the pandemic safety net is being dismantled and the COVID threat
hasn't gone away.
Not much action on sterling before the meeting, but the
dollar is at one-week highs after two Fed policymakers Robert
Kaplan and Richard Clarida spoke in favour of tapering QE this
year, with the latter predicting "pretty healthy" U.S job gains
which would allow an interest rate liftoff in 2023.
Ten-year Treasuries have inched back to 1.20% after falling
as low as 1.127% on Wednesday while inflation-adjusted yields
also are off record lows.
Stocks are mostly flatlining, after the S&P 500 closed off
record highs, pressured by the Fed remarks as well as data
showing weaker July jobs growth.
In China, it was the turn of vaping firms' shares to tumble,
following reports that minors were purchasing e-cigarettes;
these dragged the broader index 0.6% lower. Strong
earnings and a tech rally boosted Japanese stocks though record
new virus cases and more activity curbs dampened sentiment.
The earnings season in Europe and United States too is
winding down on a strong note. Lufthansa, Merck, Siemens,
Adidas, Credit Agricole and fashion retailer Zalando were among
those delivering good news.
Finally, as the likes of BOE and the Fed consider taper
timings, rate hikes are proceeding at full tilt in the
developing world -- Brazil has upped rates by a full percentage
point and on Thursday, the Czech central bank could implement a
quarter-point rate rise.
Key developments that should provide more direction to
markets on Thursday:
-Emerging markets: Egypt, Czech central banks meet
-Bank of England meeting
-German industrial orders
U.S. trade balance/initial jobless claims
-Federal Reserve Board Governor Christopher Waller speaks on
-Auction: US 4-week T-bills
-U.S. earnings: CIGNA, ThomsonReuters, Papa John’s, Sempra,
Kelloggs, Expedia, NewsCorp, Motorola, AIG,
-European earnings: Adecco, Adidas, Banco BPM, Bayer, Beirsdorf,
Credit Agricole, Continental, Deutsche Post, Lufthansa, KBC,
Merck, Novo Nordisk, Zalando
EUROPEAN SHARES LOOK FOR DIRECTION AHEAD OF BOE, U.S. JOB
DATA (0532 GMT
Futures are pointing to a flat start of the day for European
bourses ahead of the BoE meeting and job data in the U.S.
The Bank of England is expected to keep its huge support for
Britain's economy running, despite a jump in inflation and a
strong recovery from the pandemic slump.
The central bank is also seen starting to lay out plans for
how it will eventually reverse its stimulus.
"While there is little likelihood of a change in policy at
the meeting this week, it will still be noteworthy if there is
dissent on the pace of the bond buying program, and whether the
bank will look at slowing the pace," says Michael Hewson, Chief
Market Analyst at CMC Markets UK.
In the U.S., weekly jobless claims are expected to drop back
to 384k from 400k last week, according to Reuters poll.