Bank of England Takes Dovish Route to Rate Hike

Daily Analysis - 03/11/2017

FTSE 100 Flies Higher As Sterling Slippage Boosts Demand for Equities

The Bank of England increased interest rates for the first time in more than 10 years on Thursday but remarked that any subsequent hikes would be gradual, hammering the Pound lower against peers. The benchmark FTSE 100 outperformed its peers in mainland Europe by finishing a whisker from record high on Thursday.

Investors Anticipated More Hawkish Bank of England Minutes

The Bank of England’s nine rate-setters on the Monetary Policy Committee voted 7 to 2 to raise the key interest rate to 0.50% from 0.25%. It was the first hike since 2007, before the global financial crisis shoved the UK into a vicious recession.

However, investor attention was primarily focused on the BoE’s caution towards subsequent moves, after the Central Bank commented that any further increase would be "gradual" and to a "limited extent."

In a press conference following the announcement, Governor Mark Carney said policymakers would re-evaluate the economic outlook once it had more clarity on the country’s relationship with the European Union post Brexit.

The Sterling tumbled by the most in five months against a basket of major currencies on Thursday, helping FTSE 100 futures rally almost 1.50% during the session.

US Planned Layoffs at Lowest Level Since 1997

Companies in the United States announced plans to shed 29,831 jobs in October, a drop of -3.00% from a year earlier per a private survey unveiled late on Thursday. During the ten-months to October, employers announced 351,000 layoffs, the lowest comparative figure since 1997, outplacement consultancy Challenger, Gray and Christmas said.

The October tally translates to a 7.80% decline in job-cut announcements from September. The Challenger report came a day before the US Labor Department releases its October employment data. Economists surveyed by Reuters have forecast an increase of 310,000 jobs last month. On Wednesday, a report compiled by Automatic Data Processing Inc showed US firms had hired 235,000 employees in October.

Meanwhile, losses in Facebook shares kept the S&P 500 subdued on Thursday as investors evaluated the long-awaited tax cut plan released by the Republicans, sending futures modestly higher overnight after rebounding from earlier Thursday lows.

Euro Zone Factories Struggle to Meet Booming Demand

Factories across the Euro Area are recording their best year since the start of the century according to a closely-watched survey, with manufacturing struggling to keep pace with robust demand despite firms hiring staff at the fastest rate in almost 20 years.

Markit’s final Eurozone Manufacturing PMI rose to 58.5 in October from the prior month’s 58.1. The figure was marginally below a preliminary estimate of 58.6 but remained at its highest level since February of 2011. The new orders sub-index accelerated at its quickest pace since early 2011, while factories accumulated backlogs of work at the steepest incline since Markit started conducting the survey 15 years ago.

In a bid to fulfil growing demand, manufacturers hired staff rapidly, with the employment sub-index coming in at 57.3, up from September’s 56.5. EURCAD is stuck within a narrow range around 1.4930 in Friday Asian trade.

China Services Sector Paints Conflicting Picture

Activity in the Chinese service sector expanded at a faster clip in October, contrasting sharply with government data that projected a slower pace of growth. The Caixin China Services PMI advanced to 51.2 last month from 50.6 in September.

The index rebounded from September's 21-month low but remained modest per Caixin in a corresponding statement. A reading above the 50-mark signals growth in activity from the prior month, while a figure below points to a contraction. China's official Non-Manufacturing PMI slipped to 54.3 in October from 55.4 in September per the National Bureau of Statistics report on Tuesday.

Chinese policymakers are counting on growth in the services sector to rebalance their economic model from its over-reliance on investment and exports. The Yuan has found itself coming under renewed pressure following the announcement, with USDCNH edging back above 6.6200.