LONDON MARKET CLOSE: Stocks Mixed But Pound Higher After BoE Stays Put

LONDON (Alliance News) - Stocks in the UK ended mixed Thursday, while the pound found support after the Bank of England held its monetary policy unchanged in its July meeting, but suggested that the expected summer easing is likely to materialize in August.

In a surprising decision, as many analysts had expected an interest rate cut, the BoE kept UK interest rates at 0.5% and its stock of purchased assets unchanged at GBP375 billion. Gertjan Vlieghe was the only Monetary Policy Committee member to vote for a cut to 0.25%, in a 8-1 decision to keep rates on hold. The size of purchased assets was unanimously retained at its current level.

However, the BoE statement said "most members of the committee expect monetary policy to be loosened in August".

BoE governor Mark Carney had hinted last month of a summer rate cut. "The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round," said the BoE.

The statement said the MPC is committed to take "whatever action is needed" to support growth and to return inflation to the 2.0% target "over an appropriate horizon".

Analysts said the delay was because the MPC would have more data to look at should it decide to ease monetary policy at its next meeting on August 4, and Carney would have the opportunity to explain any measure in a press conference.

"By next month, the MPC will have more data to assess the performance of the economy since the June 23 vote," Berenberg analyst Kallum Pickering said. "Like other central banks, the BoE uses its forecasts as a form of forward guidance. Publishing forecasts at the same time as policy changes gives markets more insight into the BoE's reaction function."

Jonathan Loynes, chief European economist at Capital Economics, said the MPC will now have time to pull together a bolder package of measures – including both a rate cut and more quantitative easing – which will pleasantly surprise the markets.

Loynes expects a rate cut to 0.25% in August, and a GBP75 billion expansion of the asset buying programme, "perhaps also in August", to GBP450 billion from the current GBP375 billion.

The pound spiked to USD1.3477 immediately after the bank's decision, having stood at USD1.3220 prior to the BoE announcement. At the London equities close sterling was quoted at USD1.3343, compared to USD1.3187 at the same time Wednesday.

Governor Carney will give a speech Friday at the Toronto Region Board of Trade Climate Change and Financial Markets at 1300 BST.

The FTSE 100 was adding nearly 1.0% before the decision, but finished down 0.2%, or 15.93 points, at 6,654.47. The FTSE 250 added 0.2%, or 37.02 points, at 16,788.04, while the AIM All-Share dropped 0.2%, or 1.56 points, to 723.00.

Investors earlier had reacted positively to the changes new UK Prime Minister Theresa May made to the cabinet since she took office on Wednesday. Philip Hammond was named chancellor of the exchequer, while former London Mayor Boris Johnson was named foreign secretary. David Davis became secretary for exiting the European Union and Amber Rudd was chosen as home secretary.

Failed leadership candidate Michael Gove saw his justice secretary job go to Liz Truss, who became the first female lord chancellor in the thousand-year history of the role.

Justine Greening was promoted to education secretary, while Jeremy Hunt remained health secretary and Michael Fallon stayed on as defence secretary. Liam Fox was handed a brand new position as international trade secretary.

In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt ended up 1.2% and 1.4%, respectively. The euro was quoted at USD1.1110 against USD1.1102 on Wednesday.

In Asia, the Nikkei 225 index in Tokyo closed up 1.0%, while the Shanghai Composite ended down 0.2%. The Hang Seng in Hong Kong added 1.1%.

In New York at the London equities close, the Dow 30 was up 0.7%, and the S&P 500 and the Nasdaq Composite were both up 0.5%.

First-time claims for US unemployment benefits unexpectedly came in flat in the week ended July 9, the Labor Department said.

The report said initial jobless claims came in at 254,000, unchanged from the previous week's level. Economists had expected jobless claims to climb to 265,000. The four-week moving average of continuing claims fell to 2.143 million from the previous week's revised average of 2.146 million.

Banking giant JPMorgan Chase reported lower net profit in its second quarter, while earnings per share increased and beat analysts' estimates. Revenue increased with higher net interest income and topped the market view, despite weak asset management results. JPMorgan Chase was up 2.3% at the London equities close.

On the London Stock Exchange, blue-chip miner Anglo American ended up 3.4%, after being upgraded to Overweight from Underweight by JPMorgan.

International Consolidated Airlines Group rose 3.9%. IAG said it is converting two Airbus 330-300 long-haul aircraft options into firm orders for Irish carrier Aer Lingus. The aircraft will be delivered in 2017, expanding Aer Lingus' transatlantic network. Shares in peer easyJet ended up 4.6%.

Sage Group added 1.4% after Deutsche Bank initiated coverage of the payroll software provider with a Buy rating. The German bank believes the company can accelerate its revenue growth by benefiting from changes which have emerged in the accounting software market.

"Sage's revenue growth has accelerated as it migrates its large installed base from a traditional licensing model to subscriptions, reducing churn and increasing average customer run rate: we think this acceleration can continue and are satisfied that the risk of defection to competitors is mitigated by Sage's strong brand, service and local market expertise", Deutsche Bank said.

Gold miners Randgold Resources and Fresnillo ended down 1.3% and 1.6% respectively, tracking down the precious metal's price. Gold was quoted at USD1,328.90 an ounce, having stood at USD1,340.50 at the London equities close Wednesday. Meanwhile, Brent crude stood at USD47.19 a barrel at the close, compared to USD46.22 Wednesday.

In the FTSE 250, SuperGroup ended up 17%, the best mid-cap performer. The Superdry brand owner reported a fall in profit in its recently-ended financial year due to booking higher one-off costs than the prior year, but revenue rose and the clothing store chain announced payment of its first special dividend. It will pay a total dividend of 23.2 pence, plus a special dividend of 20p for the year.

Software provider Micro Focus International ended up 11% after its pretax profit more than doubled in its recently-ended financial year thanks to strong revenue growth. However, the firm said it expected either a slight drop or flat revenue in its next financial year as it looks to implement its four-phase plan.

Shares in Hays rose 5.3%. The recruiter said strength in its Europe division helped total net fee income grow in the fourth quarter of its financial year, and said its operating profit will outpace market expectations, despite a sluggish and Brexit-hit UK market.

At the other end of the index, healthcare company BTG fell 11%. It said its overall performance and trading since April 1 has been in line with expectations. BTG is guiding for revenue of between GBP485 million and GBP515 million for its full year. However, if sterling was to weaken even further against the dollar, this revenue guidance would improve to between GBP510 million and GBP540 million.

In a light UK corporate calendar Friday, Homeserve and FirstGroup release trading statements.

Highlights in the economic calendar are Chinese GDP and industrial production data at 0300 BST and eurozone inflation at 1000 BST. In the US, retail sales and inflation data are at 1300 BST. US industrial production is at 1415 BST, while the Reuters/Michigan consumer sentiment index is at 1500 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

Copyright 2016 Alliance News Limited. All Rights Reserved.