Stock indices are being traded at a combination encompassing the U.K. and Europe with apparent vague direction albeit some stand-out stock movers, whilst the euro has risen in reply to strong PMI numbers along with the pound which has plummeted following the publishing of the Bank of England the minutes from its most recent policy meeting.
By midweek of last week, the FTSE 100 remained flat at 6,680 along with the FTSE 250 which was down 0.2 % at 16,049.82 followed by the AIM All-Share which was down 0.1 % at 822.11. Encompassing the major European markets, the French CAC40 is down 0.3 % and the German DAX was pulled down at 0.2 %.
The pound plunged against the dollar to a session low of 1,6794 during the release of the minutes of the recent Monetary Policy Committee meeting at the BoE with nine members voted to collectively keep interest rates on hold at 0.5 %.
With the present unemployment plaguing the U.K., the primary question for the members of the MPC is how much slack is still remaining in the labour market. The rise in self-employment in the U.K. in recent months was regarded as a potential reason for more slack than official unemployment figures which is indicative of some self employed people as actually underemployed.
Now that the U.K. economy is hyped and ready, the market is more likely to look for the first vote in favouring a rate hike by the BoE. Moreover, the low inflation may result in possible dissenters to the BoE in holding off any rate hike calls until the third quarter at the earliest. Until such time, there may be some sterling weakness in response to the absence of calls for additional rate hike.
The BoE minutes also reveal that the potential impact of a Chinese economic slowdown might have an effect on the U.K. than it would have implied by its 4 % share of its exports, through a mixture of trade, confidence and financial channels.
Moreover, the Chinese HSBC manufacturing PMI revealed promising activity in continuation of their contract with a reading of 48.3. Even though it was an increase from 48.0 last month, it was slightly lower by the prediction by analysts which was still below the 50-point level dividing expansion from contraction.
There were far better numbers in the European market following the latest PMI numbers showing both manufacturing and service sector activity expanding much faster than earlier anticipated in the Eurozone as a relative whole.
Likewise, the Eurozone wide manufacturing PMI came in at 53.3 this month which was up by 0.3 % two months prior which beat economist expectations for a flat reading. Moreover, the Eurozone composite PMI rose to 54.0 from 53.1 last month. The reading hence exceeded a flat growth as expected by economists albeit reaching its highest level in more than three years.
Within the U.K. equities, the pharmaceutical stocks persists to perform well after last week’s strong gains on merger and acquisition talk. While the stand out blue-chip gainer was British Foods, which owns basically low-cost clothing retailer Primark which was up more than 9.0 % after raising its dividends by 4 %. Although weak sugar persists to hold back its traditional business, management anticipated that further store expansion for the remaining year are expected to garner profits well ahead.
Similarly, the FTSE 100 spectrum shows ARM Holding was reportedly down 3.5 % after saying that it’s royalty revenue from its micro chip processors continued to be a disappointing loss. Predictions by economists reveal that royalties by the chip maker are more likely to continue its growth by a slower rate over the next five years due to the fundamental shift of lower-end smartphones and tablets.
The coming weeks will reveal the results from the Confederation of British Industry’s industrial trend survey which will be due by then followed by US MBA mortgage approvals and US Markit manufacturing PMI respectively.
Finally, U.S. corporate earnings will be continuing its drive to the market and ahead of other earnings releases, future markets signal that the U.S. equity market will soon open marginally higher than in recent times.