FTSE 100 hits new record high after Fed rate decision and Dutch election result
The FTSE 100 surged to a new record high after the opening bell sounded as risk appetite returned after the Fed raised rates for only the third time since the financial crisis yesterday and the Dutch centre-right prime minister Mark Rutte won the election in the Netherlands.
The blue chip index rose by as much as 1pc to an all-time record peak of 7,442.62.
European bourses also charged higher as the reflation rally resumed. Germany's DAX neared a two-year high, Amsterdam's AEX hit a 10-year high and France's CAC hit levels last seen in August 2015.
Pound spikes to two-week high after Bank of England's first interest rate split since July 2016
The pound spiked to its highest level in two weeks after outgoing Bank of England policymaker Kristen Forbes unexpectedly voted for a rise in interest rates at the bank's March meeting.
It represents the first split on the Monetary Policy Committee since July of last year. The other eight members of the MPC opted to keep rates at 0.25pc.
In its wake, the pound soared by more than 1.31pc to $1.2356, having hit an intraday low of $1.2198 in early trade.
Bank of England leaves monetary policy unchanged
The Bank of England's MPC left its monetary policy unchanged, holding the Bank rate at 0.25pc, maintaing government purchases at £435bn and corporate bond purchases at £10bn. However, policymaker Kristen Forbes unexpectedly voted to raise interest rates.
- Federal Reserve raises US interest rates for the first time this year
- European bourses rise as reflation rally resumes
- Swiss National Bank leaves rates unchanged
Market report: Britain's mining index enjoys best day in more than three months
Britain’s mining index enjoyed its best day in more than three months after the Fed signalled a more gradual pace of rate hikes this year than previously expected.
The cautious tone from the Fed weighed heavily on the dollar, sparking a rally in commodity prices. A weaker US dollar makes buying commodities cheaper for other currency holders.
In its wake, mining giants dominated the FTSE 100 leaderboard. Anglo American leapt 103p to £12.98, Glencore rallied 16.3p to 341.4p, Rio Tinto climbed 108p to £34.55, Antofagasta added 37.5p to 844p and BHP Billiton closed 33p higher at £13.18. The FTSE 350 mining index jumped 4.23pc, its best day since December 7.
Separately, Anglo American enjoyed a boost from Indian billionaire Anil Agarwal, who announced plans to buy a £2bn stake in the company on Wednesday. The move also signalled a possible return to large-scale dealmaking in the mining sector.
The Fed’s cautious tone also lifted gold prices to a one-week high. Precious metals producer Fresnillo rose 57p to £15.10 and Randgold Resources climbed 140p to £71. Mid-cap’s Acacia Mining and Hochschild added 18.4p and 23.2p, respectively.
Elsewhere, JP Morgan issued a bullish note on Aluminum. The US investment bank upgraded Kaz Minerals rating to “overweight” as it believes balance sheet and project risks are “diminishing”. Shares finished up 42.9p at 524p.
The rally in miners helped the FTSE 100 set a new record intraday peak of 7,444.62. Although the blue chip index trimmed its gains after the pound surged in the wake of the Bank of England’s interest rate split, it still recorded an all-time closing high of 7,415.95, up 47.31 points, or 0.64pc, on the day.
Goldman Sachs reiterated its “sell” rating on Unilever as it thinks the results of the April review may disappoint. Nevertheless, shares edged 11.5p higher to £40.52.
On the other side, Hikma slumped 107p to £21.90 after JP Morgan cut its rating to “neutral”. Analysts believe the FTSE 100 stock’s risk-reward is “less compelling” as a bullish outlook for drug Advair, used for the treatment of asthma, is “now fairly well reflected” in the company’s valuation.
Alton Towers operator Merlin Entertainments also became the victim of a rating downgrade. Berenberg slashed its rating to “sell” from “hold” following a 6pc decline in full-year earnings before interest and tax. Analyst Owen Shirley said: “ We feel that Merlin is potentially one misstep away from triggering a material de-rating.” The bearish note prompted shares to fall 14.5p to 481.8p, marking its worst day in four months.
A number of stocks among the laggards were trading ex-dividend. British American Tobacco lost 36p to £51.49 and Direct Line surrendered 12.5p to 333.8p.
On the mid-cap index, OneSavings Bank reversed its position among the leaders in early trade to biggest FTSE 250 faller, down 15.5p to 403.8p. The bank reported a 15.7pc growth in its loan book last year and said it expected net loan book growth in the mid-teens this year. However, chief executive Andy Golding cautioned about the impact of Brexit.
Speaking to Reuters, he said: “We have got Brexit looming and the triggering of Article 50 and nobody really knows what impact that's going to have on the UK macro-economy.”
Elsewhere, investors took profits after Balfour Beatty posted full-year pre-tax profit of £60m, causing shares to skid 12.3p to 271.6p.
Berenberg began covering Low & Bonar with a “buy” rating. The broker says it expects the group to deliver profit growth at a rate of 150 basis points over the next two years. Shares rose 0.8p to 69.3p.
Finally, AIM-listed fund manager Miton Group surged 8.1pc on the back of forecast-beating full-year results.
On that note, it's time to close. Thanks for following our markets coverage today.
FTSE 100 closes at record high
The FTSE 100 closed at a record high, above 7,400 for the first time ever, buoyed by a rally in mining stocks. The dollar weakness in the wake of the Fed rate hike boosted commodities, making them cheaper for other currency holders, sparking a rally in the mining sector.
The blue chip index finished up 0.6pc at 7,415.57.
Meanwhile, in Europe, the DAX closed 0.5pc higher, the CAC 40 added 0.4pc and the Spanish IBEX climbed 1.6pc.
Reviewing today's action, Chris Beauchamp, of IG, said: "Markets are off the highs as the afternoon session winds down in London, and on Wall Street the day is turning into one of small losses. It would the height of folly to declare that the overnight spike in equities marked a top, but it is potentially significant that there has not been an exuberant follow-through to Wednesday’s Fed decision.
"In London it will come as no surprise to learn that the lion’s share of the gains are coming from miners and oil stocks, which are once again reveling in the weaker US dollar, although miners have also been buoyed up as a sector thanks to the manoeuvrings in Anglo-American; where an Indian billionaire goes, others are sure to follow, with miners continuing to present a convincing case as one of the more undervalued sectors on the FTSE 100."
Balfour Beatty returns to profit after a turbulent two years
Shares in Balfour Beatty dropped 3.7pc to 273.5p as investors moved to take profits after it returned to profit for the first time in two years. Isabelle Fraser has the details:
Infrastructure group Balfour Beatty has returned to profit for the first time in two years, buoyed by Donald Trump's promise to invest $1 trillion in infrastructure for potential growth.
The company, which is helping build Crossrail, HS2 and Hinkley Point, made £8m in pre-tax profits last year, from a loss of £199m in 2015. Its order book increased 15pc to £12.7bn, due to a 21pc boost to construction contracts.
This is down to a turnaround plan named “Built to Last”, designed to transform the business by cutting costs, enhancing its risk management and dropping non-core assets such as its joint ventures in the Middle East and Indonesia.
The troubled business, which issued seven profit warnings over a two-and-a-half year period running up to the summer of 2015 and fended off a takeover attempt by rival Carillon, had become too complex after a decade of acquisition-led growth.
Could the pound's good run come to an end?
The pound is the best performer in the G10 today after the Bank of England voted 8-1 to leave interest rates unchanged, with policymaker Kristen Forbes emerging as the sole dissenter.
However, Kathleen Brooks, of City Index, questions whether the local currency's good run could come to an end. She raises the following points:
- The market's bullish reaction to the BoE decision may be over-extended;
- If we don’t see a further recovery in the UK-US yield spread then further upside for cable could be limited, and the market may fade the Forbes effect;
- The sell-off in the FTSE 100 has been limited post the BOE decision, suggesting that stock investors are not fully sold on the idea of more MPC members voting to hike rates in the near-term.
Pound will underperform once Brexit negotiations are under way
Although the pound has surged this afternoon in the wake of the Bank of England's interest rate split, Jordan Rochester, of Nomura, still expects the pound to underperform once Brexit negotiations are under way.
He added: "We can't see GBP/USD going beyond an upper level of around 1.25 or EUR/GBP going meaningfully below 0.855 unless we hear more from the BoE or we see a clear recovery in UK data."
Nomura on Bank of England: No tightening until the second half of 2019
Strategists at Nomura say they did not expect the Bank of England to suddenly talk "so hawkishly given the recent decline in the data looked to have started to validate the Bank’s economic slowdown projections".
Nevertheless, the bank retains its view of no tightening until the second half of 2019.
Culture secretary refers 21st Century Fox's £11.7bn bid for Sky to Ofcom and competition watchdog
Here's our full report by Julia Bradshaw on Fox's £11.7bn bid for Sky being referred to Ofcom:
Rupert Murdoch’s £11.7bn takeover of Sky will be scrutinised by UK regulators before it can go ahead to see if the potential deal would risk undermining broadcasting standards and put control of the media in the hands of the few.
Karen Bradley, the culture secretary, has has issued a European intervention notice on the grounds of "media plurality and commitment to broadcasting standards" linked to the bid from Rupert Murdoch's company.
That means Ofcom, the media watchdog, and the Competition and Markets Authority, will investigate the merger and have 40 days to submit their findings to the Government.
Separately, Ofcom will also launch a review to see whether Fox is a ‘fit and proper’ owner to take over Sky.
Fox, which is controlled by the Murdoch empire, already owns 39pc of Sky, but is hoping to gain full control.
Philly Fed's new order index highest in nearly 30 years
Back to the US, an index on new orders in the US Mid-Atlantic region advanced to its strongest level in almost three decades in March, data from the Philadelphia Federal Reserve showed today.
The Philadelphia Fed's new orders index edged up to 38.6 this month, which was the highest since 39.4 in December 1987. In February, this gauge stood at 38.0.
Interest rates stay on hold but rising inflation breaks the consensus at the Bank of England
Here's our full story by Tim Wallace on the interest rate split at the Bank of England:
Interest rates are to stay on hold again as the Bank of England’s monetary policy committee (MPC) voted to keep the base rate at 0.25pc.
Rising inflation is causing some jitters, however, prompting one member, Kristin Forbes, to vote to raise the base rate to 0.5pc.
Combined with sustained economic growth, she was confident enough to vote to reverse the rate cut that took place in August.
Other members of the MPC also indicated they were concerned by rising prices, hinting that they could join Ms Forbes in the months ahead, causing a split in the consensus around ultra-low interest rates.
“With inflation rising sharply, and only mixed evidence on slowing activity domestically, some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted,” said the minutes of the MPC meeting.
However, more dovish members fear that the economy may be slowing as rising prices reduce growth in living standards and squeeze household spending power.
Retail sales growth has taken a hit in recent months but surveys of households appear to show confidence still remains, and customers are still happy to use their credit cards to make big spending decisions, and even to buy property.
Analysis: The key points from Donald Trump's 'America First' budget announcement
President Donald Trump has unveiled details of his "America First" budget, with commitments to increase defence budgets and slash many other departments to compensate for this.
The plan includes some more information on Trump's key campaign promises such as the Mexico border wall, climate change spending and payments to the UN.
Overall there's a 0.3pc fall between the amount of funding that Trump has requested for 2018 and the 2017 figures.
The largest cuts on cabinet departments are due to fall on State, Agriculture and Labor. Meanwhile, the Environment Protection Agency is set to lose 31.4 per cent of its funding in 2018.
These cuts make way for Trump to boost funding by nearly 10pc for defence - already by far the government's largest expenditure.
The largest single increase in funding is for the National Nuclear Security Administration, which handles "the military application of nuclear science".
What the experts say: Policy announcement was more hawkish than the market had been expecting
Here's some more reaction from experts in the City to this afternoon's Bank of England first interest rate split since July last year:
Ian Kernohan, Economist at Royal London Asset Management, said the dissenting vote by Kristin Forbes will have come as a surprise to some.
However, he added: "Although she is a well-known hawk on the committee, who will be leaving this summer."
Meanwhile, Adam Chester, Head of Economics at Lloyds Bank Commercial Banking said today's policy announcement was "more hawkish than the market had been expecting".
Laith Khalaf, Senior Analyst at Hargreaves Lansdown, reckons the Bank is showing "no signs of blinking" in the course it has chartered for monetary policy.
He added: "Inflation may be starting to rise, but interest rates are staying put for the foreseeable future, which is going to cause further pain for cash savers.
"Households face a currency crunch this year, as weaker sterling feeds through into consumer prices, pushing up the cost of living, while pay growth still looks anaemic."
Mr Khalaf said the Bank of England is now watching three measures to determine what to do with interest rates:
- Consumer prices;
- Consumer spending;
- Wage increases.
"These are the indicators to watch for an inside track on the Bank’s next move, however that move may be some time coming, and as recent history tells us, it may not be in the direction everyone expects."
ING: We do not expect the Bank of England to raise interest rates this year or next
Even though Bank of England policymaker Kristen Forbes became the sole dissenter at this week's MPC meeting, voting to raise rates, and the minutes suggested other might follow soon, ING does not expected the Bank to hike interest rates this year or next.
Among the eight-strong majority who voted to leave rates on hold, "some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes said.
Half-time update: FTSE 100 trims gains after BoE interest rate split
The surge in the pound has weighed heavily on the FTSE 100 this afternoon. After hitting a new all-time record high of 7,444.62 earlier today, the blue chip index has trimmed its gains and is now up 0.57pc at 7,410.47.
It follows the Bank of England's monetary policy announcement, although its policy was unchanged, policymaker Kristin Forbes cast the sole vote for a rate hike, representing the Bank's first split since July 2016.
The Bank's minutes also suggested others might follow Forbes soon.
Elsewhere, in Europe, bourses have made solid gains, the DAX is up 0.7pc, the CAC 40 added 0.5pc and the IBEX in Spain surged 1.6pc.
Will Forbes continue to dissent?
With sterling surging to a two-week high on the Bank of England interest rate split, Alexandra Russell-Oliver, of Caxton FX, said traders had been closely watching for any signals that the Bank might deviate from its neutral bias.
She added: "It has previously stated it could adjust monetary policy in either direction as needed and maintained that line this month. However, now that Forbes has dissented, markets will wonder whether she will continue to do so and whether other members will join her.
"Upcoming economic and political developments, including the triggering of Article 50 and the path of CPI inflation, will drive those expectations. While the Bank will likely keep policy on hold for some time, any signals of a less-dovish Bank could see sterling strengthen."
Meanwhile, UK two-year gilt yields also jumped to a day high of 0.1pc after the announcement , up 5.7 basis points.
The FTSE 100 has trimmed its gains after hitting a record high in early trade. It is currently up just 0.54pc, having enjoyed gains of 1pc in earlier today.
Here's why Kristen Forbes voted to raise rates
The minutes from the Bank of England meeting also reveal why Kristen Forbes dissented:
"For one member, the monetary policy trade-off had evolved to justify an immediate increase in Bank Rate. Inflation was rising quickly and was likely to remain above target for at least three years. Measures of domestically generated inflation had also increased notably and, combined with global reflation and minimal labour market slack, posed upside risks to inflation.
"On the other side of the trade-off, the weakness in activity expected since the referendum had not materialised. Unemployment showed no signs of increasing. Although consumer spending appeared to be softening, as expected, growth was likely to be supported by other components of demand, such as net exports. Therefore, for this member, there was less justification for tolerating inflation above the target for an extended period, although monetary policy should remain nimble."
Why the Bank of England left rates on hold at 0.25pc
Eight members considered the current policy stance still to be appropriate, the minutes revealed:
"Pay growth had remained subdued, consistent with the Committee’s view that some slack remained in the labour market, and there had been some signs that the squeeze in households’ real income growth was feeding through into spending, as expected. In this context, the conditioning assumption that had underpinned the February projections – that there would be some modest withdrawal of monetary stimulus over the course of the forecast period – remained appropriate. The potential for uncertainty over future trading arrangements to affect materially economic decision making remained, posing a downside risk to the activity outlook, to which the Committee could respond if necessary.
"On the other hand, with inflation rising sharply, and only mixed evidence on slowing activity domestically, some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted."
Pantheon Macroeconomics: Few signs other members will join the new solitary hawk
Samuel Tombs, of Pantheon Macroeconomics, says there are a few signs that other members will now join the new solitary hawk, Forbes.
"The emergence of hawkish dissent this month is surprising, given that January’s CPI inflation rate of 1.8pc undershot the Committee’s expectation by one-tenth, wage growth has slowed and activity indicators like the PMIs have edged down. Ms Forbes is leaving the MPC in June, and it is not uncommon for outbound members to strike out against the consensus.
"For the main part, the minutes suggest that the Committee’s consensus view has not changed since February. The Committee asserted that the judgements underpinning February’s Inflation Report—which implied no need to raise interest rates this year—“remain broadly on track”. The minutes restated that “there are limits to the extent that above-target inflation can be tolerated”, but there was no suggestion that these limits were approaching."
Markets react to BoE: Pound spikes to two-week high
Here's how markets reacted to the Bank of England leaving rates unchanged:
- FTSE 100 pares gains, now up 0.62pc (down from a gain of 1pc);
- Pound spikes, up 1.14pc to $1.2340 against US dollar, touches two-week high;
- Pound hits day's high of 86.95p per euro, up 0.3pc on the day.
BoE: Inflation is 'rising sharply'
At their meeting this week, Bank of England policymakers mostly felt there were signs that consumers were turning more cautious as wage growth slowed and inflation rose, pushed up by the post-referendum fall in the value of the pound.
In the minutes from their March meeting, the MPC said: "Pay growth had remained subdued, consistent with the Committee's view that some slack remained in the labour market, and there had been some signs that the squeeze in households' real income growth was feeding through into spending, as expected."
Yesterday, data from the ONS showed annual pay growth slowed to 2.2pc in the three months to January.
In the minutes, the MPC said: "With inflation rising sharply, and only mixed evidence on slowing activity domestically, some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted."
Access the minutes here:
Kristin Forbes cast sole vote for rate hike
Bank of England policymaker Kristin Forbes voted to raise interest rates at the bank's meeting this week.
Forbes, is due to leave the British central bank in June, cast the sole vote in favour of raising Bank Rate to 0.5pc. That's the first split on the Monetary Policy Committee since July 2016.
The minutes showed that Forbes, who is leaving the Bank of England to return to her career as a US academic, felt measures of domestically generated inflation had increased notably. She had signalled that she was getting uncomfortable with keeping rates steady.
Breaking: Fox takeover of Sky referred to regulators
The British government said it would refer Rupert Murdoch's planned takeover of European pay-TV group Sky to regulators to decide if the deal was in the public interest.
Murdoch's US TV business Twenty-First Century Fox which own 39pc of Sky, notified the European Commission of its £11.7bn bid earlier this month, opening a window for Britain to intervene.
Media Secretary Karen Bradley told parliament it was important and wholly appropriate to seek advice from the regulator Ofcom on whether the deal would give Murdoch and his companies too much control of Britain's media, and whether the new owner would be committed to broadcasting standards.
Report from Reuters
A first and last vote for Charlotte Hogg
After resigning as deputy Bank of England governor earlier this week, Charlotte Hogg's first vote on the monetary policy committee will also be her last.
On Tuesday, Ms Hogg resigned as Bank deputy governor less than a fortnight into the role after failing to disclose that her brother holds a senior position at Barclays. She was criticised by an influential group of MPs for not declaring that her brother, Quintin, is a director of strategy at the commercial bank - one of the institutions that she regulates.
Toyota invests £240m in Derbyshire: here are all of the post-Brexit investments in the UK - in one chart
Toyota has announced plans to invest £240m in its car plant in Derbyshire, in the latest vote of confidence in the UK economy post-Brexit.
The move, which will be backed by £21.3m of Government funding, shows the UK "remains one of the best places in the world to do business", said business secretary Greg Clark.
Toyota's investment at Burnaston follows a string of commitments in recent months, putting to bed fears that the country may struggle to attract new business post-Brexit.
Last month Dyson revealed plans to invest further in the UK, with company founder Sir James Dyson describing uncertainty around Brexit as a 'sideshow'.
Here's a timeline of events:
Pound dips after Queen grants formal approval to Brexit legislation
The pound has lost ground after Queen Elizabeth granted formal approval to Brexit legislation giving Prime Minister Theresa May power to begin EU exit talks.
Sterling dropped following the announcement and is changing hands at $1.2252 against the US dollar, having hit an intraday high of $1.2312 in early trade.
Sentance: Bank of England must start raising rates soon
Former Bank of England MPC member Andrew Sentance thinks the Bank of England "must start raising rates soon from their record low", with unemployment falling to its lowest level since 1975.
While Bloomberg highlights that faster inflation appears to be making a case for a rate hike at the Bank of England:
"The BOE announces its policy decision at noon in London, and economists predict the benchmark rate will stay at a record-low 0.25pc. With the pound’s 18pc drop since the referendum fanning consumer prices and starting to squeeze households, officials will probably allow inflation to wander above target so as not to subdue growth. That contrasts with the US Federal Reserve, which raised rates on Wednesday and signaled more to come as inflation gets close to its goal."
BoE in focus on Carney’s birthday
It's been a whirlwind week of economic announcements, since 6pm yesterday the Fed, BoJ, and SNB have announced their latest monetary policy decisions. Attention will now shift to the Bank of England, which will announce its rate decision at noon today.
Joshua Mahony, of IG, previews the event: "After Hogg-gate, Mark Carney will hope his birthday Q&A session goes smoothly, following what is likely to be an uneventful rate decision. The BoE was accused of jumping the gun when implementing lower rates and a new QE programme in the immediate aftermath of the EU Referendum.
"We will have to see a more considered and data driven BoE going forward, given the restrictions a resurgent inflation rate and rock bottom interest rates can present."
Dutch election result: Mark Rutte sees off Geert Wilders challenge as Netherlands rejects far-Right
Follow our live politics blog on the Dutch election result here: Dutch election result: Mark Rutte sees off Geert Wilders challenge as Netherlands rejects far-Right
What does the election result mean?
The Dutch election had been billed as a litmus test for populism in Europe after last's year British vote to leave the European Union and the election of US President Donald Trump.
With centre-right Prime Minister Mark Rutte on course for a resounding victory over anti-Islam and anti-EU Geert Wilders early on Thursday, there was relief from other EU governments facing a wave of nationalism.
But there were also warnings that Mr Wilders and the the far-right movement across Europe would not quietly fade away.
Toyota to invest £240m in its Derbyshire car plant
Away from the Fed rate hike and Dutch elections, Toyota has announced that it will invest a further £240m in its UK manufacturing car plant in Burnaston, Derbyshire.
The investment is being made to improve plant competitiveness and will promote UK supply chain efficiencies, the motor group said this morning.
Analysts respond to Fed rate hike: Thank you, Janet Yellen
The Dutch election is only one catalyst of today's rally, last night's Fed rate hike is also pushing equities higher this morning. Here's what the experts have to say:
FXTM Chief Market Strategist Hussein Sayed:
“Thank you, Janet Yellen,” this is today’s market message to the U.S. FedChair.
"The greenback is falling while everything else is in green today after the Federal Reserve delivered on its promise to hike rates by 25 basis points. While this move was widely expected, many market participants were positioned for a more hawkish language and an upgrade in economic projections which didn’t happen.
"Yesterday’s hike can be described as a “dovish hike” or “neutral” at best. The little tweaks in the statement and economic projections suggest that the economy is still moving on the right path, but there’s no evidence of overheating economy. Inflation forecasts remained unchanged at 1.9pc for 2017, the GDP forecast for 2018 was revised slightly higher by 0.1pc, and most importantly the dots didn’t move much, indicating that only two rate hikes remain for the rest of the year."
Meanwhile, Neil Wilson, of ETX Capital, said despite policymakers being more firmly agreed on three hikes this year rather than just two, markets took it as a dovish signal that the Fed is going to only cautiously tighten as the economy improves.
"The message was that the economy is firing but inflation is not going to be an issue. It’s in no hurry to raise rates and that is good news for equities."
Strategists at MUFG raised the following points after the Fed rate hike:
- What remains clear from the market reaction yesterday is that market participants are doubting the guidance of the FOMC relayed through the DOTS profile;
- Yields in the US plunged by a larger extent than seems justified by yesterday’s FOMC announcement dragging the dollar lower in unison;
- The plunge in yields and the slide of the dollar is unlikely to be sustained as we move toward the June FOMC meeting.
Mike Bell, Global Market Strategist, JPMorgan Asset Management expects further interest rate increases at each non-crisis press conference meeting in 2017.
Anthony Cheung, of Amplify Trading, recaps how the market reacted to the announcement from the FOMC last night in his morning briefing:
Analysts react: Dutch ado about nothing?
One of the drivers of today's strong risk appetite is the Dutch election result. The Dutch centre-right prime minister Mark Rutte won the election in the Netherlands. Here's what the experts had to say about the result:
Anna Stupnytska, Global Economist at Fidelity International:
“The poorer than expected performance of Geert Wilders’ Freedom Party is good news for the eurozone, with the euro gaining as the results pointed to a clear victory for Mark Rutte’s centre right VVD party. This is a market positive result, although with a three party coalition looking unviable, a long negotiating period to form a government is likely. This is not helpful for a Greek bailout review.
“Markets will of course now turn their attention to France, where the candidacy of the far right Marine Le Pen arguably poses greater risks. To whatever extent this vote is a signal on France, the high turnout and rally around towards the mainstream centre look bad for her. The structure of the French presidential election also create additional obstacles to any far right victory in France. As such, the Dutch result may be remembered as the turning point in the popularity of populism for 2017.”
Kathleen Brooks, of City Index, noted that European markets take a breather after Wilders’ loss.
"While the rise in the euro is also due to the decline in the buck after the FOMC dot plot suggested two more rate hikes from the Federal Reserve this year, we would expect the French – German yield spread to narrow further in trading on Thursday, as the bond market takes a sigh of relief that there was no Trump-style shock in the Dutch elections. This is also evident in stock markets with futures pricing in a positive open for Europe and the US."
UBS Wealth Management:
"The Netherlands remains a pro-European stronghold, with the populists having achieved a worse-than-expected result according to first exit polls. UBS Wealth Management's Chief Investment Office looks at what the results mean for the upcoming coalition building, as well as the impact on markets and the upcoming elections in France. While the worse-than-expected populist performance should support risk markets in Europe, the unconvincing populist performance in the Netherlands may weigh on French voters' sense of urgency when heading for the ballots for their elections."
UK mining index on track for biggest one-day gain since November
The UK's mining index is on track for its biggest one-day rise since November last year.
A fall in the dollar against major currencies after the Fed signaled a more gradual pace of rate hikes this year than previously expected has prompted the rally in mining stocks.
A weaker dollar helps dollar-denominated commodities, as it makes it cheaper for buyers in other currencies. Copper this morning jumped 1.1pc while zinc climbed 1.4pc.
The FTSE 350 mining index is currently up 5.3pc. Anglo American surged 9.2pc, Antofagasta jumped 6.7pc, BHP Billiton added 5.7pc, Rio Tinto advanced 5.2pc and Glencore is 5.1pc higher.
Separately, Anglo American enjoyed a boost after Indian billionaire Anil Agarwal said he would buy a stake of up to £2bn in the mining giant.
FX markets: Pound heads towards $1.23; dollar at one-month low; euro stands tall
Looking at the FX markets this morning, the pound is heading towards $1.23 against the dollar after slumping to an eight-week low at the beginning of the week.
The pound is changing hands at $102265, up 0.55pc on the day.
The move higher comes as the dollar wallows at a one-month low after the Fed sounded less hawkish on the pace of future rate rises than expected.
Meanwhile, the euro climbed to a five week high of $1.0746 against the dollar, after surging 1.2pc overnight, following the Dutch election result. The common currency bounced higher as exit polls showed that centre-right Prime Minister Mark Rutte scored a resounding victory over anti-EU Geert Wilders in yesterday's election, alleviating fears Holland would opt to leave the EU.
Risks to stability remain in Europe
Although Dutch centre-right Prime Minister Mark Rutte scored a resounding victory over anti-Islam and anti-EU Geert Wilders in an election yesterday, Jeremy Cook, of World First, says risks to stability remain in Europe.
HE said: "As we have spoken about for months now, the Dutch election always had a short and a long term risk; short was the risk of a PVV win/outperformance and the market, erroneously, transposing that risk on to the upcoming French elections. The longer-term risk stems from dangers to EU solidarity amid Brexit negotiations and/or a fragile/weak coalition in one of Europe’s biggest economies.
"For now, the saddest person in Europe will not be Geert Wilders but instead Marine Le Pen; she was the first foreign politician to congratulate Brexit campaigners on ‘taking back control’ and has frequently tied herself to Trump and his anti-status quo rhetoric. A win or good showing for Wilders will have added impetus to her campaign. Today it looks more difficult for her to win the Presidency although we have issues with the belief that one country’s vote can influence the voters in the other that readily."
Norway's central bank leaves interest rates unchanged
Another central bank rate decision, this time from Norway. Norge's bank has kept its key interest rate on hold at 0.5pc this morning as the economy continues to show signs of recovery following a two-year slump.
Norway's central bank said rates would remain at this level for several years but also left the door open for a cut if necessary.
Swiss National Bank leaves rates unchanged
The Swiss National Bank has left its monetary policy unchanged this morning ahead of the French election which could trigger an upsurge in demand for the safe-haven Swiss franc.
This morning the Swiss central bank kept its target range for three-month Swiss fanc Libor at -1.25pc to -0.25pc and it kept the rate it charges on sight deposits at -0.75pc. This was widely expected.
The SNB said it remained committed to negative interest rates and currency interventions to rein in the Swiss franc, which it said remained "significantly overvalued". It also was "cautiously optimistic" for the outlook of the Swiss economy.
French govt bond yield hits one-week low after Dutch vote
France's government bond yields hit a one-week low in early trade on Thursday after results of yesterday's Dutch parliamentary elections suggested that populist party PVV would come a distant second to the current ruling party.
Dutch centre-right Prime Minister Mark Rutte scored a resounding victory over anti-Islam and anti-EU Geert Wilders in yesterday's election.
French government bonds were seen as vulnerable to a potential victory for PVV, as France faces its own presidential elections in April and May, with far-right leader Marine Le Pen in with a chance to win the keys to Elysee Palace.
France's 10-year government bond yield fell 5 basis points to one-week low of 0.99pc. Most other euro zone bond yields were also lower on the day.
Report from Reuters
Reflation rally is back on: European bourses climb to multi-year highs
The reflation rally is back on! European shares soared this morning after last night's Fed rate hike and the Dutch election result. Dutch centre-right Prime Minister Mark Rutte scored a resounding victory over anti-Islam and anti-EU Geert Wilders in an election yesterday.
Here's what happened soon after the opening bell sounded in Europe:
- Italy's FTSE MIB hit its highest level since January 2016, up 1.2pc;
- France's CAC 40 hit its highest level since August 2015, up 0.8pc
- The German DAX hit its highest level since April 2015, up 1.2pc;
- Amsterdam's AEX index hits highest level since December 2007, up 0.8pc;
- Europe's Stoxx 600 jumps 0.5pc to highest level since December 2015;
- FTSE 100 hits new record high, smashing the 7,400 barrier, up 0.73pc.
Mike van Dulken, of Accendo Markets, said: "Calls for a positive open come thanks to investors ignoring the Fed’s rate hike to concentrate on an unchanged outlook. Forecasting just two more hikes this year, markets have digested the policy update as less hawkish than it could have been. A USD sell-off has thus helped Oil and metals extend rebounds, benefiting the likes of dual-listed Miners RIO and BLT down under overnight.
"Add to this a rather more palatable Dutch election result than feared and risk appetite has been restored. Markets are being allowed to ponder the potential for less populist French and German political outcomes in the months to come while further US stimulus supports both US growth and Fed policy normalisation, in turn helping global growth."
FTSE 100 hits record high after Fed rate hike and Dutch election results
The FTSE 100 surged to a new record high after the opening bell sounded as risk appetite returned after the Fed raised rates for only the third time since the financial crisis yesterday and the Dutch centre-right prime minister Mark Rutte won the election in the Netherlands.
The blue chip index surged by as much as 0.73pc to 7,422.33.
China and Hong Kong stocks rise on stronger risk appetite after Fed
China and Hong Kong stocks tracked regional markets higher on improved risk appetite after the US Federal Reserve raised rates in a widely expected move, although it dampened expectations of more aggressive tightening ahead.
The CSI300 index rose 0.4pc, to 3,477.94 points by the lunch break on Thursday, while the Shanghai Composite Index gained 0.7pc, to 3,263.08 points.
The Hang Seng index added 1.3pc, to 24,104.06 points, while the Hong Kong China Enterprises Index gained 1.7 percent, to 10,442.55.
The Fed raised its benchmark policy rate by 25 basis points, which had been largely factored into markets, traders said.
Meanwhile, Fed policymakers still projected a total of three rate increases this year, defying predictions from some analysts that it would release a more aggressive set of rate-raising forecasts.
Hong Kong's central bank raised its benchmark interest rate while China's central bank lifted short-term interest rates after the US rate hike.
Report from Reuters
Agenda: Bank of England rate decision; Trump's first fiscal budget
Good morning and welcome to our live markets coverage.
Last night, the Federal Reserve hiked US interest rates by another 25 basis points in its third upward move since the financial crisis.
Janet Yellen, chair of the Fed’s board of governors, said the economy is on a healthy footing as unemployment is falling, and so rates need to go up to limit rising inflation. She expects the central bank to increase rates twice more this year, accelerating from the single rate hikes in both 2015 and 2016. The move started a rally on Wall Street and lifted European bourses at the opening bell.
Today, attention shifts to the Bank of England. At noon, it will announce its rate decision. The Bank is not expected to make any policy changes at its March meeting. Analysts think the Bank will leave its key interest rate unchanged at 0.25pc.
Back to the US, President Trump is expected to his first budget for the 2018 fiscal year later today. The White House has released few details about Trump's budget, other than making clear the US President wants to boost military spending by $54bn.
Also on the agenda:
Full-year results: Balfour Beatty, Capital Drilling, Megafon, OneSavings Bank
Trading update: Sainsbury (J)
Economics: Official bank rate (UK), monetary policy summary (UK), MPC official bank rate votes (UK), MPC asset purchase facility votes (UK), asset purchase facility (UK), building permits (US), housing starts (US), unemployment claims (US), Philly Fed manufacturing index (US), final CPI y/y (EU)