While you were sleeping: BOE cuts rate

Friday 5th August 2016

Wall Street was little changed as investors eyed Friday’s US jobs data to gauge the odds of a Federal Reserve rate increase this year, while the Bank of England lowered its key rate for the first time since 2009.

After Wednesday’s better-than-expected ADP jobs data, a Labor Department report showed initial claims for state unemployment benefits unexpectedly rose, gaining 3,000 to a seasonally adjusted 269,000 for the week ended July 30.

"The data do indicate the economy and the labour market are improving," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, told Reuters.

A government report on Friday is expected to show that US non-farm payrolls rose by 180,000 in July, while the unemployment rate is expected to fall to 4.8 percent from June's 4.9 percent, according to economists polled by Reuters.

In 2.52pm trading in New York, the Dow Jones Industrial Average slipped 0.1 percent. The Nasdaq Composite Index, however, added 0.1 percent. In 2.36pm trading, the Standard & Poor’s 500 Index inched 0.05 percent lower.

The Dow moved lower as declines in shares of Walt Disney and those of Home Depot, recently down 1.2 percent and 1 percent respectively, outweighed advances in shares of Visa and those of Microsoft, last up 0.8 percent and 0.7 percent respectively.

In Europe, the Stoxx 600 Index ended the session with an increase of 0.7 percent from the previous close, as the Bank of England cut its key bank rate to a historic low as part of a package of fresh stimulus measures to support the UK economy after the nation’s vote to exit the European Union. The bank also flagged the potential for a still lower rate.

“If the incoming data prove broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year,” the BOE said in a statement. “The [Monetary Policy Committee] currently judges this bound to be close to, but a little above, zero.”

Germany’s DAX index rose 0.6 percent, as did France’s CAC 40 index, while the UK’s FTSE 100 index rallied 1.6 percent.

“They did what everybody hoped they would do to save the financial system,” Michael Woischneck, a senior equities manager at Lampe Asset Management in Dusseldorf, Germany, told Bloomberg. “If we can do anything to stabilise the UK economy, our trading partners, that’s good for Europe. Markets are happy for today, but I think it won’t last very long.”

Meanwhile, former Federal Reserve Chairman Alan Greenspan suggested that oil prices have probably bottomed out at about US$40 per barrel, Bloomberg reported, citing a transcript of a conference call organised by Rock Creek Group, an investment advisory firm in Washington.

“It’s hard for me to imagine it going very much lower, but it could,” Greenspan said, according to Bloomberg. Greenspan sees oil trading in a range of about US$40 to US$50 a barrel over the next couple of years.

BusinessDesk.co.nz

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