Pound hits near five-year high and Markets Rally after Federal Reserve meeting

Dovish Fed chair Janet Yellen sends markets surging. U.S. dollar comes under pressure following the Fed announcement with the pound rallying to near five-year highs. The Confederation of British Industry fears exports could suffer from strong pound…

 


Powered by Guardian.co.ukThis article titled “Stock markets rally and pound hits near five-year high after Federal Reserve meeting – business live” was written by Graeme Wearden, for theguardian.com on Thursday 19th June 2014 13.40 UTC

In parliament the Treasury Committee has given its stamp of approval to Kristin Forbes, MIT professor, joining the Bank of England’s monetary policy committee.

After a hearing yesterday, Andrew Tyrie MP, said:

 

“The Committee is satisfied that Professor Forbes has the professional competence and personal independence to be appointed to the Monetary Policy Committee and wishes her every success in her new role.

“The Committee also welcomes the fresh perspective Professor Forbes should bring to the MPC from her economics and public policy experience in the US.”

During the hearing, the Committee appeared concerned that Forbes – an expert on financial contagion – has not worked specifically on monetary policy before. She explained that her work on macro-economic themes such as how crises spread, and on global capital flows, were crucial to modern monetary policy.

Updated

European lunchtime summary: Fed cheers the markets

Last night’s dovish tone from the US central bank has lifted European stock markets, pushed the pound higher, and sent the VIX volatility index down to its lowest level in around eight years.

The Fed sparked the rally last night, by giving no clear indication of when interest rates might rise, and by refusing to panic about the recent pick-up in inflation.

As Kit Juckes of SocGen put it:

In the end, Janet Yellen’s dovish bias ruled. The Fed is more worried about anchoring long-term rate expectations than preparing the market for rate hikes.

Other economists pointed out that the Fed is not willing to risk knocking the US economy back by raising rates too soon:

European stock markets are close to their highest level in six years. Here’s a snapshot, after Japan’s Nikkei hit a four-and-a-half month high:

  • FTSE 100: up 0.7% at 6827, +48 points
  • German Dax: up 0.85% at 10015, +84 points
  • French CAC: up 1% at 4575, + 45 points
  • Italian FTSE MIB: up 1% at 22251, +222 points
  • Spanish IBEX: up 1.1% at 11234, +122 points

Global investors were also cheered by the Fed’s declaration that “[US] economic activity has rebounded in recent months”.

It’s the financial markets favourite cocktail — the promise of more loose monetary policy today, and the prospect of growth tomorrow.

David Thebault, head of quantitative sales trading at Global Equities, commented:

“The overall tone was pretty dovish and the forecast for economic growth seems lower than expected, which is good for equities. Central banks continue to drive markets big time.”

The Euro STOXX 50 Volatility index, Europe’s main “fear gauge”, tumbled 9 percent to 12.6 – a level not seen since 2006.

The pound is trading steadily at its highest level since August 2009, at $1.7035 to the US dollar – prompting the CBI to warn it could hurt exports.

And the dollar remains lower today against most currencies — as traders adjust to the fact that Janet Yellen did not, as some predicted, give hints about when interest rates might rise.

Ioan Smith, director at KCG, said (via Reuters)

“There was a fear that the Fed would pick up more of a hawkish rhetoric, which they didn’t do.

It was probably patience on their part, even after the uptick in inflation in May.”

Updated

The oil price has reached a new nine-month high today.

Brent crude hit $114.80 per barrel for the first time since September 2013. That’s partly due to the dollar having weakened, but also caused by fears that the insurgency in Iraq could hit supplies.

Over to Reuters for details:

Government forces battled Sunni militants for control of Iraq’s biggest refinery as Prime Minister Nuri al-Maliki waited for a U.S. response to an appeal for air strikes to beat back the threat to Baghdad.

The Baiji refinery, 200 km (130 miles) north of the Iraqi capital near Tikrit, was a battlefield as troops loyal to the Shi’ite-led government held off insurgents from the Islamic State of Iraq and the Levant and its allies who had stormed the perimeter, threatening national energy supplies. (Full Story)

If the 300,000 barrels per day (bpd) refinery stays closed for long, Baghdad will need to import oil products to meet its own domestic consumption, further tightening oil markets.

“This would stress an already reasonably tight global balance further, depending on its duration,” oil analysts at Vienna-based consultancy JBC Energy said in a note to clients.

Updated

Encouraging jobs data from America just hit the wires – the number of people filing new claims for unemployment fell last week, from 318,000 to 312,000.

And the ‘continued claims’ total dropped to 2.561m, from 2.615m — Reuters says that’s the lowest level since October 2007.

Updated

Paddy Power have issued new odds on where the pound will end the year – and they suggest sterling will continue to rally from today’s $1.702:

In good news for holidaymakers the 5/6 favourite is between $1.76 to 2.00, while there’s 8/1 should it head north from there.

It’s 9/2 for $1.50 or less and 11/8 to finish the year between $1.51 and $1.75.

One of the Bank of England’s interest rate setters, Ian McCafferty, has confirmed that the Monetary Policy Committee is inching closer to raising borrowing costs.

In a speech just released, McCafferty also said the decision will “critically” depend on data (inflation and wage growth, me thinks).

  • BANK OF ENGLAND’S MCCAFFERTY – DECISION ON WHEN TO RAISE RATES IS BECOMING “MORE BALANCED”
  • BOE’S MCCAFFERTY – SHOULD NOT HOLD BACK TOO LONG ON RAISING RATES TO ENSURE INCREASES ARE GRADUAL
  • BOE’S MCCAFFERTY – MUCH UK PRODUCTIVITY WEAKNESS MAY BE PERSISTENT
  • BOE’S MCCAFFERTY – DECISION ON WHEN TO RAISE RATES DEPENDS “CRITICALLY” ON COMING MONTHS’ DATA

No end to the protests in Greece

Our Greek correspondent Helena Smith reports that the protests outside the Athens finance ministry are growing, with sacked cleaning workers becoming increasingly organised in their push to be reinstated.

Helena says:

Just passed the finance ministry on Servias Karaegorgis street off Syntagma Square, and despite the rowdy demonstrations earlier today there is an air of festivity about the cleaners’ burgeoning protest.

The entrance to the ministry now resembles a tent city with laid off school guards and school teachers also pitching tents, tables and chairs outside the building. A blackboard proclaimed that this was the 44th day the cleaners have been there.

“And we are going to stay for as long as it takes,” said Despoina Kostopoulou, aged 53, and the cleaners’ de facto spokeswoman. “Our aim is to get our jobs back and if that means us being here all through the summer so be it,” she said adding that around 15 cleaners slept outside the building every night.

“Every day we will plan a protest. This weekend I am going to Yannina to give a speech. We are becoming much more organised and as you can see solidarity for our position is growing. The school guards and teachers came around 15 days ago. They have helped boost our morale.”

Updated

CBI warns strong pound could hit exports

The strong pound risks denting Britain’s recovery, by making it harder for manufacturers to export, the CBI has warned this morning.

Katja Hall, CBI deputy director-general, is concerned that the strength of sterling – to a near five-year high of $1.702 today – will hurt overseas orders.

Hall said:

“Demand for British made goods remains buoyant and that’s helped drive this quarter’s further rise in output.

“Growth is broad-based, with the recovery spreading its roots, and firms have high hopes for the coming quarter.

“However, the recent rise in Sterling could impact on the resilient export orders we’ve seen lately.

On the other hand — factory owners should be reassured that the US Fed thinks America’s economy will recover pretty strongly through the rest of this year.

Hall was speaking after the CBI’s monthly survey of manufacturers showed that factories are raking in new business. Order books have swelled to a six-month high – close to the 18-year high achieved last December.

The CBI reports:

Demand for UK-made goods rose strongly in June…

This strength was broad-based, with above average results in 14 out of the 17 sectors. The food and drink sector was particularly robust, reporting its fullest order books in just under four years.

Ukraine has a new central bank governor — former investment banker Valeria Hontareva (also written as Gontareva).

Hontareva’s appointment was “overwhelmingly” approved by the Ukraine parliament this morning, having been nominated by new president Petro Poroshenko.

Hontareva has previously held senior roles at ING and Société Générale, and ran headed local investment bank Investment Capital Ukraine.

In her new role, she’ll be negotiating with the IMF over the financial assistance Ukraine needs since the Crimea crisis began.

She told MPs that:

“My appointment can be seen as a positive signal for bankers and a positive signal for international investors.”

The Ukrainian Hrynvia has strengthened a little today against the (generally weakening) dollar, up 0.75% to 11.86 to $1.

Updated

In the City, the hottest ticket of the day appears to be a place at the annual general meeting of Quindell, the technology outsourcing and consultancy company.

Perhaps sensing trouble ahead, Quindell took the precaution of banning her Majesty’s press pack from the event. But Twitter user Private-Investor is there, and reports that hordes of shareholders have descended

So why the rush? Well, back in April, Quindell’s shares tumbled after US research firm (and short seller) Gotham Research launched a remarkable attack on the company, questioning its profitability – which Quindell swiftly rebutted.

Its share price remains bruised, though:

Will Hedden of IG says the London stock market is “holding on to the coat tails of US markets and a dovish Federal Reserve meeting,” with the FTSE 100 now up 58 points, or 0.86%.

Less than half a dozen blue chips are trading in the red, with no notable fallers. On the upside Rolls-Royce (+6%) has powered to the top spot, having promised shareholders a billion pounds in buybacks, after it sold its gas turbine unit to Siemens earlier in the year.

Janet Yellen’s relaxed approach to last month’s rise in US inflation has helped drive shares up. Hedden points out that the VIX index, which tracks volatility, has hit a seven year low:

The Fed’s reaction to recent inflation data as ‘noise’ created a nice echo for equity bulls, with US indices pushing back towards their early June all-time highs and the VIX printing a low close not seen since February 2007.

Updated

As the US dollar keeps weakening, the pound has touched a new near-five year high of $1.7028.

As flagged up earlier, travellers on Britain’s West Coast line can look forward to four more years of Virgin Trains, after the company paid £430m to keep running the service.

The deal comes two years after the government handed the line to rival First Group, only to slam on the brakes after flaws in the process were exposed.

Virgin has promised to spend £20m brushing up the stations, convert some 1st class carriages into standard class for the rest of us to cram into, and install super-fast WiFi:

Virgin Trains to run west coast mainline until 2018

UK retail sales fall by 0.5% in May

UK retail sales fell back in May, but sales of football replica shirts stopped the decline being worse, according to data just released.

The amount spent in the retail industry increased by 3.2% last month, compared with May 2013, but was 0.5% lower than the previous month.

That’s the first monthly fall of the year, but largely as expected after retailers benefitted from the late Easter in April.

And there was a 28.9% surge in spending at sporting goods and toy stores, compared to a year ago.

A new fitness frenzy? Not exactly…The Office for National Statistics explains that events in Brazil are probably responsible:

Feedback from retailers in these stores has suggested that the increase in sales in May 2014 is due to the build-up of the FIFA World Cup. A better picture of the impact of the World Cup on retail sales statistics will be available when June data are released on 24 July 2014.

The data also gives little sign of inflationary pressures, with average prices paid at the till falling. The ONS says:

Average prices of goods sold in May 2014 showed continued deflation of 0.7%, fuel once again providing the largest contribution, falling by 2.2%. Food stores were the only sector to show an increase (0.4%) however, this series continues to fall and is now at its lowest level since March 2006 (0.3%).

And here are the key charts:

Updated

European stock markets are close to their highest level in over six years, reports Reuters, after this morning’s rally (see 8.19am):

The rise left the FTSEurofirst 300 just 0.1 percent off of its 2014 high set earlier this month, which was the index’s highest level since January 2008.

In Greece, cleaning workers who lost their jobs last summer in the austerity cutbacks are protesting outside the office of New Democracy, the governing party.

Via Twitter, here are a couple of photos from the scene from crisis-watcher @inflammatory_

These cleaning staff have been calling for their jobs back for many months. In May a judge ruled they should be reinstated, only for another court to suspend that ruling. And still they fight on.

Updated

The strength of the pound should reduce inflationary pressures in the UK, points out economist Shaun Richards:

The weakness of the dollar has also pushed the euro higher – which will not be welcome, as eurozone inflation is running at just 0.5% per year (compared to 1.5% in the UK).

Pound hits highest level against US dollar since August 2009

Sterling has hit its highest level in almost five years against the US dollar this morning, as currency traders reacted to last night’s events.

The pound pushed back over the $1.70 mark to hit $1.7017, a level not seen since August 2009.

Janet Yellen’s dovish words on inflation and unemployment have pushed down the dollar, as has the news that Federal Reserve policymakers believe interest rates will eventually peak at a low level (3.75%, down from 4%).

Updated

European stock markets rally after Fed meeting

Europe’s stock markets are open, and they’re rallying in early trading as traders take their cue from last night’s Federal Reserve meeting.

The FTSE 100 has jumped by 46 points, or nearly 0.7%, to 6825. The German, Spanish, Italian and French markets all rose by 0.8%.

The biggest riser in London is Rolls-Royce, which announced a bit share buyback this morning. But share are gaining across the board – here’s the risers and fallers:

Traders are pushing shares higher after Fed chair Janet Yellen gave no indication that recent increases in inflation, and drops in unemployment, required a rise in borrowing costs.

As Jasper Lawler of City firm CMC Markets explains:

Yellen didn’t seem too concerned about the recent rise in consumer price inflation and chose to emphasise the risks that low inflation could pose to economic performance.

For unemployment, the Chair referenced the decreasing participation rate saying some of the improvements to the headline rate were as a result of “shadow unemployment or discouragement”; both of which impy a continued need for stimulus.

Australia’s stock market has enjoyed its best day’s trading of the year, sharing in the wider Asian rally.

The Federal Reserve’s upbeat view of the US economy drove investors into buying mining stocks, scenting profits if the world’s biggest economy picked up pace.

And the lack of any hints of an early US interest rate rise also drove shares up.

From Melbourne, Stan Shamu of IG explains:

The boards have lit up in Asia today after the Fed delivered a dovish tone, while the market seemed to have been positioned for a slightly more hawkish tone.

This saw US equities extend gains to fresh record levels and this has also resonated through to Asian markets.

Updated

There’s nothing like a dovish central bank to get the stock markets moving upwards, and Janet Yellen appears to have done the trick last night – sending most Asian markets rallying.

The Federal Reserve was upbeat about US economic prospects (as we wrote last night), despite actually cutting its growth forecast for 2014 following the bad winter.

And while the Fed “tapered” its bond-buying package by another $10bn per month, to $35bn, Yellen gave no indication of exactly when interest rates might start to rise.

And Fed members’ own forecast of where interest rates might reach in the long term fell from 4% to 3.75%.

That sent the S&P 500 to a fresh record high last night, and Japan’s Nikkei has followed the trend – hitting a four-month high.

As Nobuhiko Kuramochi, a strategist at Mizuho Securities in Tokyo, explained:

“The Fed sees the U.S. economy as on track, while it hinted of low interest rates in the long term.”

Coming up today: Federal Reserve reaction; Argentina’s battle against default…

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone.

Today I’ll be watching the reaction to yesterday’s Federal Reserve meeting, where it cut its stimulus programme by another $10bn….

…we’ll also keep an eye on Argentina’s battle to avoid default over the row with holdout creditors.

In Europe, the International Monetary Fund will be presenting its assessment of the eurozone economy to finance ministers — and arguing that the European Central Bank should consider buying government bonds.

As one source put it to Reuters:

“The draft from the euro zone mission restates more strongly the request previously made to the ECB to do more to fight the risks of deflation.

“It doesn’t mention ‘quantitative easing’ but it does talk about bond purchasing programmes.”

While in the UK, the latest retail sales figures will show if consumers kept spending in May.

In the corporate world, Virgin Rail Group has announced it has secured a new deal to keep running the West Coast Main Line.

More to follow on all those issues, along with other news through the day….

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