Market wrap: BoE raises rates, risk mood poor – Westpac

Analysts at Westpac explained that the Bank of England raised its key rate to 0.75% as widely expected but sterling reversed gains on commentary indicating a very slow pace of tightening.  

Key Quotes:

“Risk appetite was poor in Europe but US equities brushed off trade war worries. US dollar strength was broad, knocking AUD/USD down to 0.7360. Today we see Australia June retail sales data and various regional trade releases but the global focus of course is the US July employment report.”

“The Bank of England hiked rates 25bps to 0.75%, with a 9-0 vote. This was almost entirely priced into markets, but the accompanying commentary was mixed to softer.”

“The bank lowered its rate trajectory over the 3 year forecast horizon in what is seen as a neutral to dovish hike. The BoE detailed their low assessment of the UK’s neutral rate (r*) as well as citing concerns over Brexit. GBP/USD fell about 1 cent to 1.3020 over the day but initially popped up about 50 pips to 1.3120 on confirmation of the rate rise.”

“Otherwise, Asia’s concern over China’s response to US trade tariffs also weighed on European sentiment. Lower corporate earnings in Germany added to declines, their DAX index closing -1.8%. Italy’s MIB Index fell -2.0% as Italian budget concerns resurfaced, but US stocks held firmer, as Apple rose to make it the world’s first US$1trn firm.”

“Commodities began the day on the defensive but bulk futures rose (Dalian iron ore +1.8%) and oil (+1%) during Europe’s trading session despite the broad negative tone in markets.”

“Major and emerging currencies (Turkish lira -1.5%, South African rand -1.4%) suffered against both USD and JPY. EUR/USD fell 0.75c to 1.1585, while USD/JPY recovered from 111.35 to 111.65 as US equities rallied. AUD/USD slid -0.4% to 0.7365 and NZD/USD was even heavier, -0.75% to 0.6740, allowing AUD/NZD to rebound 35 pips to 1.0925.”