The Bank of England (BoE) hiked interest rates to their highest level in 15 years on Thursday as the UK has been battling some of the highest inflation in the world’s large, industrial economies. Equity markets were under pressure, still focused on rating agency Fitch’s downgrade of the US government’s credit rating.
The BoE increased its main interest rate by one quarter of a percentage point to 5.25% on Thursday, its fourteenth rate hike in a row. Additionally, the central bank released an update to its inflation forecasts. The BoE now expects inflation to come in at 4.9% at the end of the year, a quicker deceleration than the central bank’s previous forecast. It foresees 2.5% inflation at the end of 2024 and 1.6% at the end of 2025. Inflation in the UK was over 10% at the start of 2023, much higher than the BoE’s target of 2%.
In New York, stock indices finished Thursday’s session lower following mixed macroeconomic data from the US. Factory orders in the world’s largest economy came in above market expectations, increasing 2.3% in June when compared to the previous month or 0.9% year-on-year. US initial jobless claims were less positive, increasing by 6,000 to 227,000 last week while layoffs fell to their lowest level in nearly a year. The effects of Fitch’s downgrade of the US government’s credit rating were still being felt on equity markets as the yield of the US 30-year bond rose by 14 basis points to 4.30% overnight, putting equity markets under pressure. The Dow Jones Industrial lost 0.19% to finish Thursday at 35,215.89 points and the S&P 500 fell 0.25%, closing at 4501.89 points. The Nasdaq-100 was down 0.11%, ending at 15,353.54.
In individual stocks, Infineon shares plummeted more than 9% on Thursday after the German semiconductor manufacturer announced a fourth-quarter outlook that failed to meet market expectations. In the US after-hours trading, shares in tech giants Amazon and Apple were both on the move following earnings reports that came after the close of trading. Amazon shares were trading up around 9% after the bell with Amazon’s second-quarter sales and profit both beating market expectations. Apple’s shares were trading slightly lower after the company said it expects the current lacklustre sales to continue into the current quarter.
In Asia, stock markets were mixed in early Friday trading. In Tokyo, the Nikkei 225 was trading marginally lower and South Korea’s Kospi was slightly higher. In Australia, the S&P/ASX 200 was roughly flat. Chinese equity markets were looking strong with Hong Kong's Hang Seng Index up 1.1% and the Shanghai Composite gaining 0.6%.
In macroeconomic data from Europe, the Consumer Price Index in Switzerland fell by 0.1% in July to 106.2 points when compared with the previous month. Compared to the same month a year earlier, inflation was 1.6%. That number is below the Swiss National Bank’s (SNB) 2% inflation target and much lower than in neighbouring countries. The SNB will announce its next monetary policy decision on September 21.
Oil prices were on the rise on Friday and were close to making their sixth consecutive week of gains. Saudi Arabia again extended its voluntary oil output cut of one billion barrels per day on Thursday. The cut will be in effect through September and could continue beyond then. Similarly, Russia said on Thursday that it will cut exports by 300,000 barrels per day in September. The OPEC+ oil exporting group has been limiting oil exports since late last year in an effort to prop up prices.
Corporate news in focus: Quarterly and half-year figures from Sika, Swiss Re, Commerzbank.
Economic data in focus: German industrial orders (08:00 CET), Switzerland’s KOF Employment Indicator (09:00), Eurozone retail sales (11:00), US labour market data (14:30).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.