Global stocks rally after Bank of England's bond-buying measures, but Pound takes hit

In bond markets, the Bank of England rate cut sent yields on some short - and medium-term US Treasury's to their lowest in more than three weeks. Photograph:( Reuters )

Reuters New York, NY, United States Aug 05, 2016, 01.59 AM (IST)
Global stock markets rose on Thursday, after the Bank of England cut interest rates and revived a bond-buying program to cushion the blow to the economy from Britain's June 23 vote to leave the European Union.

The launch of the policy-easing measures hammered Sterling and weighed on bond yields.

The Bank of England cut its main rate by a quarter percentage point to a record low 0.25 per cent, and said it would take "whatever action is necessary" to achieve stability in the wake of Britain's vote to leave the EU.

The rate cut was widely expected but not the other measures.

"The Bank of England has hit a perfect 'High Five' at today's meeting, over-delivering against market expectations and bucking the recent trend of central banks disappointing," said Nick Gartside, a JP Morgan Asset Management portfolio manager.

MSCI's world stocks index, which tracks shares in 45 nations, was up 0.30 per cent, on pace to snap a three-day losing streak.

Sterling was down 1.59 per cent at $1.3110 and on track for the largest one-day fall against the Dollar in a month. 

"The BoE's dovish guidance and bearish outlook for growth will leave the Pound at risk of further falls in the months ahead," said Joe Manimbo, senior market analyst at Western Union Business Solutions. 

Wall Street shares were little changed as investors were largely wary of making big bets ahead of Friday's US nonfarm payrolls report, data that may offer insight into the timing of the next Federal Reserve interest rate increase. 

"Given that we’ve got a big number coming out tomorrow, any investor willing to make a stand can just wait a day and have a lot more information," Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

The number of Americans filing for unemployment benefits unexpectedly rose last week, and orders for factory goods fell for a second straight month in June. The labour market, however, remains healthy and will probably continue to support economic growth for the remainder of this year. 

In afternoon trading, the Dow Jones industrial average was down 21.75 points, or 0.12 per cent, at 18,333.25; the S&P 500 0.71 point, or 0.03 per cent, lower at 2,163.08, and the Nasdaq Composite was up 5.81 points, or 0.11 per cent, at 5,165.55.

Europe's broad FTSEurofirst 300 index closed up 0.72 per cent at 1,331.68, its best day in two weeks. Strength in major financial and industrial stocks such as Aviva Plc and Siemens AG boosted the region's equity markets. 

Oil prices rose for a second straight day and US crude advanced firmly above the $40 a barrel mark on short-covering and after a modest stockpile drop at the delivery hub for US crude futures.

Brent crude settled up $1.19, or 2.76 per cent, at $44.29 a barrel, while US crude settled up $1.10, or 2.69 per cent, at $41.93.

In bond markets, the BoE rate cut sent yields on some short- and medium-term US Treasury's to their lowest in more than three weeks.

The move pushed yields on 10-year UK government bonds, or Gilts, to a record low of 0.639 per cent.

Benchmark 10-year US yields fell to their lowest in three days, 1.484 per cent.

The Dollar gained against a basket of currencies for a second straight session, as investors continued to balance positions ahead of Friday's jobs report.

The Dollar index, which tracks the greenback against six major currencies, was up 0.20 per cent at 95.750.

Gold prices turned higher on the BoE decision, but the stronger Dollar kept a lid on gains.

Spot gold prices were up 0.26 per cent at $1,361.02 an ounce.