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MARKET WRAP: BoE keeps rates unchanged, GBP sinks, FTSE jumps

Economy2 hours ago (Nov 04, 2021 16:30)

© Reuters.

Key Points

FTSE 100 closing price of 7280.30, +0.4%
Bank of England keeps rates unchanged despite signals for a hike
Financials tumble following decision
BT rallies following earnings
GBP tumbles as BoE refrains from tightening
UK yields tumble as gilts rally
Oil prices dip as OPEC+ maintains easing path
Bitcoin steady, Shiba Inu plunges

By Samuel Indyk

Investing.com – The FTSE 100 rallied and the pound sunk on Thursday following the latest Bank of England decision. The central bank kept its interest rate unchanged despite markets pricing in a rate hike at this meeting, following signals from high-ranking officials that they made need to act to contain inflation.

“The Bank of England has defied markets and kept rates on hold, though the statement makes clear a December hike is more likely than not,” said analysts at ING in a research note. “More importantly, policymakers have offered very little pushback against market expectations for a series of rate rises next year.”

Prior to the meeting, markets had priced in at least 100 basis points of tightening by this time next year. ING expects two rate hikes, at most, in 2022.

Financials were some of the worst hit following the decision as margins will remain squeezed by low interest rates. NatWest (LON:NWG), Lloyds (LON:LLOY), Barclays (LON:BARC), Standard Chartered (LON:STAN), and HSBC (LON:HSBA) all fell by between 2% and 5%.

At the other end of the blue-chip index was BT (LON:BT), whose shares rallied after a trading update. The telecoms company said its cost-savings plan was ahead of schedule and also abandoned plans to find a joint venture partner for its full-fibre network. CEO Philip Jansen said the decision to go it alone was driven by better-than-expected take-up of the service and the declining cost of upgrading the network.

GBP plunged following the Bank of England decision with GBP/USD dropping over 2 points below 1.3500. The pair was on track for its biggest decline in 14 months.

UK bonds surged higher after the central bank announcement with yields falling across the curve. Shorter dated paper, which is more sensitive to rate hikes, saw the biggest moves with the UK 2-Year yield dropping almost 22 basis points. The 10-Year yield fell over 13 basis points.

“Today’s events are a huge own goal for the central bank, already widely distrusted by the markets due to the unreliable boyfriend era of Mark Carney,” said CMC Markets Chief Market Analyst Michael Hewson. “It’s going to be a long road back from this, with the pound down sharply and yields also sharply lower, and with no clear idea of when we will get to see this modest increase in rates.”

Moving away from the Bank of England and focus was on a meeting of a different kind in Vienna. OPEC+ decided to stick to their plan to increase oil production by 400,000 barrels per day from December, resisting pressure from the Biden administration to lift output by more. WTI and Brent crude prices had risen by as much as 3% heading into the meeting but pared gains following the announcement.

Cryptocurrencies were mixed with Bitcoin relatively steady above $61,000. The notable underperformer was Shiba Inu which declined by over 30% as a ‘whale’ that turned $8,000 in $5.7 billion moved nearly $3 billion into four different wallets. Speculation is that the ‘whale’ may be thinking about taking some profits following the 800% gain in October.

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MARKET WRAP: BoE keeps rates unchanged, GBP sinks, FTSE jumps

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