It’s been a quiet morning’s trade for UK assets with the FTSE 100 and pound little changed ahead of the Bank of England (BoE) rate decision. The base rate is almost universally expected to be kept on hold at a record low 0.25%, but there is a growing feeling that there may be additional support for the two dissenters, with Mccafferty and Saunders both calling for an interest rate hike at the last meeting.
Rise in CPI increases chances of a hawkish shift
Even though the markets are expecting the Bank of England to stand pat at today’s policy decision, the recent rise in the consumer price index (CPI) has led many to believe that we could see a hawkish shift amongst the committee, with Chief economist Andy Haldane seen as the most likely to join the dissenters in calling for a rate hike. The BoE saw 3 members call for higher rates back in June after the CPI rose to 2.9% - its highest level since 2013. The inflation metric fell back in the subsequent two releases but a return to 2.9% on Tuesday has raised the chances of additional dissent. A 6-3 or even more hawkish split amongst the Monetary Policy Committee (MPC) would see the market quickly reprice the chances of a hike at the next meeting in November, when the central bank will also publish its quarterly inflation report as well as host a press conference with Governor Carney - two events that are seen to increase the probability of a major policy announcement. Should this occur then the pound will add to its recent gains and with the currency sitting at fairly significant technical levels against the US dollar, Euro and Japanese Yen we could be close to a major break higher for sterling.
Next soars after raising profit forecasts
Whilst the FTSE 100 treads water on the whole ahead of the BoE rate decision, there’s been some substantial moves amongst a number of the benchmarks components. Next is the stand out performer with the retailer seeing its stock soar by more than 12% after lifting its profit forecasts. Full-year profits are now expected to be in the range of £687m-£747m, up from the £680m-£740m previously projected by the firm. The bullish call has boosted others in the retail sector too, with Marks & Spencer and Associated British Foods riding higher on the back of the announcement. As for the fallers, Provident Financial has handed back the majority of its gains seen so far this week in sliding over 4% today, with Rio Tinto, Glencore and BHP Billiton also all firmly lower, with the mining sector reacting negatively to worse than expected Chinese economic data released overnight.
Bitcoin near 1-month low after large sell-off
The Chinese hostility towards cryptocurrencies seems to be weighing on Bitcoin, with the price of the digital currency shedding more than 10% on Wednesday. Two negative announcements in a matter of days from the far east have tested the resolve of Bitcoin bulls with the Chinese central bank declaring initial coin offerings (ICOs) illegal before last Friday, regulators ordered the nation’s digital exchanges to close. The news events didn’t see much of an immediate reaction in the price, but after JPMorgan CEO Jamie Dimon denounced Bitcoin on Tuesday night - labelling the phenomenon a “fraud” - and stating that he would fire any employee trading the product, the bears emerged. Panic ensued during yesterday’s session with not just Bitcoin, but a whole host of other cryptocurrencies experiencing near panic levels of selling with double digit declines seen in all the leading markets. The question now is whether this is in fact the bursting of the widely acknowledged bubble or whether more money will step in and buy the pullback. Today has seen cautious trade, with the market little changed but should we see a break below Wednesday’s low there is a good chance we revisit the $3000 level where the market made a major break above back in early August.
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