LONDON MARKET CLOSE: Stocks Higher As BoE Strikes Dovish Tone

(Alliance News) - Stocks in London ended in the green on Thursday after the Bank of England's monetary policy announcement was considered to be more dovish than anticipated.

The FTSE 100 index closed up 42.37 points, or 0.6% at 7,356.42. The FTSE 250 ended up 35.03 points, or 0.2%, at 20,089.46 and the AIM All-Share up 1.26 points, or 0.1%, at 885.76.

The Cboe UK 100 ended up 0.6% at 12,486.94, the Cboe UK 250 closed up 0.2% at 18,001.76 and the Cboe Small Companies ended up 0.5% at 11,003.88.

In Paris the CAC 40 ended up 0.7%, while the DAX 30 in Frankfurt ended up 0.6%.

City Index analyst Fiona Cinoctta said: "The FTSE led the charge higher in Europe as investors cheered a more dovish sounding BoE. As expected the Bank of England kept rates on hold in an unanimous vote. However, the central bank struck a more dovish tone, indicating that it's next move could be a rate cut rather than a hike. Up until now the BoE had retained a hawkish bias; today that was replaced with a slightly more dovish stance as the UK central bank joins the other central banks around the globe with a more cautious outlook.

"Following the dovish tone from the BoE, the FTSE has continued to pace higher. There is nothing like the prospect of cheap money to get equities moving!"

The pound was quoted at USD1.2485 at the London equities close, firm against USD1.2476 at the close Wednesday, after the Bank of England voted to keep its main interest rate at 0.75%.

The Monetary Policy Committee decided unanimously to hold borrowing costs at a meeting held Wednesday, the BoE said in published minutes.

However, the BoE struck a dovish tone implying that persistent Brexit uncertainty could dampen demand and inflation, leading to lower interest rates.

Unlike the European Central Bank and US Federal Reserve, which are both cutting rates, the BoE is sitting tight as inflation weakens in the UK.

In addition, problems could be exacerbated if the UK were to crash out of the European Union without a deal, the central bank added

"In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow," the BoE said Thursday.

The UK is set to leave the EU on October 31, even without a deal according to Prime Minister Boris Johnson. However, talks continue between the UK government and Brussels on agreeing an orderly departure as the clock ticks down.

Societe Generale's Brian Hilliard said: "There can be no debate about the course of UK monetary policy over the next few months. The political battles being fought over Brexit are doing real damage to the economy. The key to the desired policy path is the strength of earnings growth and its pass-through to inflation. The MPC notes that unit labour costs are rising in tandem with earnings but there is no convincing evidence that this is yet feeding through to inflation. Moreover, if the labour market tightness is peaking, as the MPC suggests it might be, then that argument for policy tightening from labour market pressures will be weakened.

"And the external environment is weakening too. The minutes talk of a 'weaker global backdrop'. SG's view is that the trade war is increasing in intensity and global trade is in recession. The US is likely to enter recession next year, the Fed has cut, and will cut further, and the ECB has given an almost open-ended commitment to policy easing. This is not a background against which tightening of UK policy would have any credibility at all."

On the London Stock Exchange, International Consolidated Airlines ended the best blue chip performer, up 3.8% after Morgan Stanley double upgraded the British Airways parent to Overweight from Underweight.

At the other end of the large cap index, Next ended the worst performer, down 5.7% after the clothing and homewares retailer said it made a "disappointing" start to the autumn-winter season after warm weather.

JD Sports Fashion closed down 2.9% after the UK Competition & Markets Authority said JD's acquisition of trainers retailer Footasylum may lead to a substantial lessening of competition.

The CMA issued an initial enforcement order on the GBP90 million deal in May and subsequently in July it commenced a probe into the deal.

In response, JD said it remains in talks with the competition regulator and continues to evaluate whether to proceed to hase 2 probe, or if acceptable remedies can be agreed.

In the FTSE 250, IG Group ended the best performer, up 10% after the contract-for-difference provider said first-quarter operating performance was supported by increased client trading activity, growth in active clients, and favourable market conditions in August.

The euro stood at USD1.1050 at the European equities close, flat from USD1.1057 late Wednesday.

Stocks in New York were higher at the London equities close as investors digested the latest monetary policy announcements from the US Federal Reserve.

The DJIA was up 0.4%, the S&P 500 index up 0.5% and the Nasdaq Composite up 0.7%.

The Fed on Wednesday lowered benchmark interest rates by a quarter of a percentage point and Fed Chair Jerome Powell said policymakers would be ready to act aggressively if the world's largest economy began to deteriorate, lifting market spirits.

Moreover, the Federal Reserve Bank of New York on Thursday injected billions of dollars into US money markets to preserve the Fed's control over short-term interest rates but requests for funds increased.

The New York Fed said it pumped USD75 billion into the markets, the maximum it announced for the so-called repo operation. But requests submitted rose to USD83.9 billion, surpassing the USD80 billion requested in Wednesday's operation.

In company news, Microsoft Corp was up 2.5% and is on track to close at a new record high in New York. The software giant on Wednesday declared a quarterly dividend and announced a new share buyback programme for up to USD40 billion.

Brent oil was quoted at USD64.51 a barrel at the equities close, higher than USD64.16 at the close Wednesday, as tensions in the Middle East flared.

Iranian Foreign Minister Mohammad Javad Zarif said on Thursday that the consequence of a Saudi or US military strike on Iran would be an "all-out war."

The rhetoric between the US and Iran has escalated in recent days following attacks on two Saudi oil facilities that Washington and Riyadh have blamed on Tehran. Tehran denies involvement.

Earlier this week Saudi Arabia set out a timeline for a resumption of full operations, saying it had restored supplies to customers at levels prior to the attacks on its facilities by drawing from its oil inventories.

Riyadh said it would restore its lost production by the end of this month, and bring its output capacity back to 12 million barrels per day by the end of November.

Traders remain on the lookout for further developments, including the US and Saudi response, with both putting the blame at Iran's door. The crisis reignited worries about a military flare-up in the oil-rich Gulf region, which would send prices soaring and likely hit stock markets.

"The source of the attack, while still not known for certain, could have significant economic ramifications for Saudi; if it was Iran, then a repeat attack is unlikely, but if it was Houthi rebels, then repeated attacks on vital Saudi infrastructure could seriously harm the Kingdom’s economy and, by extension, the global energy sector," said analysts at Oxford Economics.

Gold was quoted at USD1,501.30 an ounce at the London equities close, lower than USD1,507.01 late Wednesday.

The economic events calendar on Friday has Japan inflation data overnight and Germany producer prices at 0700 BST.

The UK corporate calendar has annual results from engineer Smiths Group and a trading statement from Anglo-South African financial services firm Investec.

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