Most Asian stock markets rose on Friday after the Bank of England launched a larger-than-expected post-Brexit stimulus package that sent the pound reeling. Nevertheless, investors are cautious ahead of the release of the US monthly jobs report later in the day.
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MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3 percent, headed for a 0.9 percent weekly gain. Retail sales rose just 0.1 percent in June, well short of forecasts of a 0.4 percent increase. Investors demand 1.43 percentage points of extra yield to hold the notes instead of government bonds, the data show. Sterling sank 1.5 percent against the dollar in the first half hour after the decision and as BoE Governor Mark Carney started speaking. The trade-weighted index was little changed at 76.18 from 76.05. China will release a flurry of data over the coming week. The Monetary Policy Committee’s measures include a plan to buy 60 billion pounds of government bonds over six months, as much as 10 billion pounds of corporate bonds in the next 18 months and a potential 100 billion-pound loan program for banks.
The dollar stood tall in early Asian trading on Thursday on the back of a stronger-than-expected USA employment data, while sterling remained in a tight range ahead of the Bank of England’s expected interest rate cut later in the session.
ANALYST’S TAKE: More rate cuts and other easing measures look “very likely” in light of Bank of England governor Mark Carney’s “very negative” outlook in the event of Britain leaving the European Union, which foresees a rise in unemployment from 4.9 percent to 5.5 percent, said Angus Nicholson of IG in a report.
Spot gold was up 0.3 percent at $1,361.14 an ounce by 3:00 p.m. EDT (1900 GMT), off an earlier low of $1,348.50, while USA gold futures for December delivery settled up 0.2 percent at $1,367.40.
Yields on euro zone bonds such as German bunds also tumbled on Thursday as bond prices rose after the BoE news.
The Bank’s policymakers were not completely united on how to respond to the fallout from Brexit.
Wall Street ended Thursday little changed ahead of the jobs report, which will be scoured for clues as to whether it is strong enough to support a Federal Reserve rate hike as early as September.
Payrolls processor ADP said on Wednesday that USA private employers added 179,000 jobs in July, above economists’ expectations for a gain of 170,000 jobs.
While the referendum result has darkened the growth outlook, it’s also lowered the pound, pushing up costs for importers and potentially stoking inflationary pressures. “That should be positive for the dollar”.
The dollar, which fell 2 percent last week and slipped nearly 0.2 against a basket of currencies on Friday, flipped to trade 0.3 percent higher on the day. The contract jumped $1.10 on Thursday to close at $41.93.
The dollar was effectively flat at 101.185 yen, on track to fall 0.8 percent on the week.
While the rally fizzled out on Friday, prices remained well above 3-1/2-month lows hit earlier this week.
Oil prices rose almost 3 percent on Thursday, with US crude advancing firmly above the $40-per-barrel mark on short-covering and after a modest stockpile drop at the delivery hub for USA crude futures. In the banking space, Mitsubishi UFJ Financial is declining 0.3 percent. We forecast EUR/GBP to rise to 0.90 in 6M.
The Australian dollar hovered near a 3-week high, after the Reserve Bank of Australia said core inflation is likely to remain below target until 2018, leaving the door open to more policy easing following the cut in its benchmark rate to an all-time low of 1.5 percent this week.
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The futures market is pricing in a 50-50 chance of another cut by year end.
