UK Equities Slide Lower

Daily Analysis - 16/06/2017

Strengthening Pound Hits Momentum in Multinational Stocks

The UK’s FTSE 100 equity benchmark lost the most in a month on Thursday following the latest decision from the Bank of England. Stocks tumbled after an unexpected hint of a rate hike in the UK resulted in a rally in the Pound versus major currency peers.

Investors Price in Bank of England’s Shock Interest Rate Vote

In a widely-anticipated decision, the Bank of England opted to maintain its benchmark interest rate at 0.25%. However, the vote tally to keep the rate unchanged was only 5 as the number of dissenting views rose to 3.

Analysts had forecast only one BoE member voting in favour of a rate rise, in-line with the May meeting. Data points released earlier this week have shown UK inflation surging close to 3.00% alongside average wages falling and retail sales dropping, evidence of the growing inflationary impact on growth and economic activity.

The Central Bank also reaffirmed the size of its asset purchase program at GBP 435 billion and its corporate bond purchase program at GBP 10 billion.

The kneejerk reaction to the decision sent FTSE 100 futures tumbling to 7314 last session before mounting a pullback in early Friday trade.

Bank of Japan Keeps Policy Steady

Japan’s Central Bank decided to leave monetary policy unchanged during its latest decision while upgrading its outlook for private consumption and overseas growth, indicating greater confidence that the export driven recovery was gaining momentum.

Overnight interest rates will stay at -0.10% and 10-year bond yields will continue to be capped at around 0.00% for the time being. Asset purchases will be kept close to the current target of 80 trillion yen, however, there are concerns about the available assets remaining for purchase.

Governor Haruhiko Kuroda also lifted the GDP growth forecast to 1.60% for fiscal 2017-18 from the 1.50% projected in January, suggesting greater conviction in the outlook for economic activity.

Japanese economic data has been more robust in recent months, with significant expansion in both exports and industrial production.

EURJPY is gaining in Friday morning trade, with the pair currently topping 124.000.

US Homebuilder Confidence Dips

After months of gains in, homebuilders in the US are feeling less optimistic this month according to data from a leading survey.

The National Association of Home Builders Sentiment Index declined to 67 in June from a downwardly revised 69 in May. Of the index's major components, ongoing sales conditions shed 2 points to 73, while sales expectations over the coming six months lost 2 points to 76. Since the start of the year, homebuilders have been benefiting from increased demand.

As the market strengthens and more buyers enter, builders are beginning to grapple with a shortage of skilled workers and land plots cleared for home construction. However, should upcoming building permits and housing starts figures come in weak again, it could be a sign of the housing market echoing the reduced confidence of homebuilders.

An upside rebound late on Thursday’s session has seen the Nasdaq Composite extend the run higher ahead of the European session, with futures trending around 5725.

New Zealand Manufacturing Gathers Steam

Manufacturing activity in New Zealand continued to expand in May to reach the highest level since January of 2016, foreshadowing an accelerated pace of second quarter economic growth.

The Bank of New Zealand’s Performance of Manufacturing Index came in at a seasonally adjusted 58.5 last month, 1.6 points higher than the April reading of 56.9. A figure above 50.0 separates expansion from contraction.

The manufacturing sector has remained in an expansionary mode since October of last year, boosted by a construction boom following the Christchurch earthquake that has extended into the lucrative Auckland housing market.

Major components of the index including production, employment and new orders, all fared well in May, suggesting a broader pickup in activity.

Despite the deceleration in GDP momentum announced earlier this week, AUDNZD is down as the New Zealand dollar manages to appreciate on the back of better data, trading below strong resistance at 1.0550.