Financial market research and analysis

Stocks lifted by low rates

Central Banks in the US and UK pointing to low interest rates for longer and signs of a pickup in oil company earnings bolstered European markets on Thursday. Germany was the notable exception after surprisingly weak results and signs of instability at its largest lender Deutsche Bank.

The FTSE 100 was led higher by shares of Royal Dutch Shell after well-received fourth quarter earnings. Multinationals led the charge amongst blue chips thanks to the benefits a lower British pound. Brexit uncertainty following the release of the government’s white paper was clearest in the more domestically focused FTSE 250 which has a loser connection to the value of the pound.

Shares on Wall Street opened mixed as investors digested a fairly neutral outlook from the Federal Reserve. There was some distress over reports that the US President put the phone down on the Australian Prime Minister but for once The Donald was not front and centre in markets.

Bank of England raise forecast

The Bank of England failed to deliver the kind of positive sentiment on the UK economy needed to continue Sterling’s recent run of good form. A lot of the first super Thursday of 2017 was spent defending less-than-super forecasts by the BOE before Brexit.

The Bank of England remains very much on the fence on the direction of interest rates. Anyone wondering when to remortgage or deciding between fixed or variable rates got very little guidance from the Bank of England today.

On the positive side growth forecasts were reluctantly lifted but that was outweighed by no change to the inflation forecast and no sign of dissent at the decision to keep rates unchanged. The Bank of England revised higher growth for 2017 to 2% from 1.4%, 2018 to 1.6% instead of 1.5% and kept the inflation outlook about the same around 2.7%.

Governor Mark Carney gave a clear shot across the bows for British consumers; a squeeze on the cost of living is coming. Prices do appear to be heading higher so whether Bank of England is proved eventually right on the squeeze on incomes may rest with wages. The labour market very tight with low unemployment so workers are in the best position they’ve been in years to bid up wages.


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