Bank of England Cuts Interest Rate and Boosted Stimulus

Thursday was a frenzy day in the City of London after British central bank cut its key interest rate to a record-low 0.25% for the first time in seven years. The Bank of England (BOE) also unveiled a package of stimulus measures worth up to £ 170 billion including increasing quantitative easing program by £60 billion to £435 billion and making up to £10 billion of corporate bond purchases. Investors seem to appreciate additional money the BOE sided for the purchase of corporate bonds, and with stimulus to ease the lending to Brexit-hurt companies. The yield on the U.K.’s 10-Year bond was also driven to record lows.

The FTSE 100 index rose 1.59% to 6,740.16 points. The FTSE 250, where companies are more oriented for the British market was in the green as well closing up at 1.45% to 17,244.32 points. In Germany, the DAX index added 0.29% to 10,227 points while the French CAC 40 rose 0.57% TO 4,345 points.

As Expected the British Pound kept sliding. The Sterling lost around 1.35% to the euro, fell approx. 1.48% against the U.S. dollar, down 1.58% compared to the Japanese yen and was 1.44% weaker versus the Swiss franc.

Meanwhile, spot Gold Prices were higher after the BOE news. After trading in the red in the previous session, gold increased 0.44% to go to $43.79 per gram. The yellow metal increased 2.07% over the past seven days and 6.53% in the past six months, a move the Brexit vote contributed significantly.

Some good corporate earnings added to the atmosphere. Insurer Aviva Plc jumped 7.22% after reporting a 13% rise in half-year operating profit. Banking shares were in demand and profiting, with the Asian-focused Bank Standard Chartered and HSBC was up around 5% and 2.7% respectively. The negative news comes from Lloyds bank, which fell 1.43%. On the other hand, the Engineering Company Siemens shares soared 5% following the good earnings and better output prospects, whilst the steel manufacturing ArcelorMittal also jumped 3% as the company had its ‘BUY’ rating re-affirmed.

The news from England had minimal impact on Wall Street, as markets opened almost flat. The unchanged U.S scenario was also the result of a higher production of crude oil in Iraq at 4.63 million barrel a day in July and the building up of inventories in the US, which were offset by a fall of gasoline supplies by 3.26 million barrels as reported by the Energy Information Administration. Of much more importance for Wall Street is Friday’s US job number – which if strong could revive expectations for a Federal Reserve interest rate hike later on this year.