Frankfurt, London and Paris extended the previous day’s gains after the British central bank halved rates to a record-low to combat fallout from Britain’s looming European Union exit.
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The Dow Jones industrial average slipped 2.95 points to 18,352.05.
Britain’s central bank moved to stem the economic fallout from the vote to leave the European union, approving its first interest rate cut Thursday since the global financial crisis as part of a broader stimulus package.
The bank’s rate-setting Monetary Policy Committee (MPC) could decide to re-activate its quantitative easing (QE) bond-buying programme, under which it has already pumped $500 billion of cash into the economy to boost lending.
“BoE governor Mark Carney’s assessment of the post-Brexit UK economy was very negative, predicting the unemployment rate will rise from 4.9% to 5.5% over the next two years despite the new stimulus”, IG market analyst Angus Nicholson wrote in a note. The euro held steady at $1.1135, but was down 0.3 percent for the week. “They essentially put the onus on the fiscal side of the house”, said Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon.
“In expectation of an interest rate cut, financial conditions have loosened in recent weeks, while the inflationary impact from weaker sterling has also been a factor”.
On Wednesday, a report from private US payroll firm ADP said the world’s top economy added 179,000 jobs in July, slightly more than expected.
An overnight rally in crude oil prices also sharpened investors’ risk appetite, but caution before the July U.S. non-farm payrolls report later on Friday kept gains in check.
Economists at HSBC say the BOE could even go a bit lower, seeing 0.05 percent as a possibility.
To make it easier for banks to pass the lower interest rates on to households and corporations the BOE will also introduce a Term-Funding Scheme for banks (amounting to up to £100bn ) which will provide cheap funding to the banks at an interest rate close to the bank rate.
The British pound crawled up 0.2% to $1.3130 after retreating 1.7% overnight. South Korea’s Kospi added 0.3 percent to 2,000.03 and Hong Kong’s Hang Seng index gained 0.4 percent to 21,832.23.
While the first half of 2016 saw relatively strong growth, this is expected to fall in the second half.
OIL: Benchmark U.S. crude rose 98 cents, or 2.4 percent, to $41.81 per barrel in NY.
Brent crude, a benchmark for worldwide oil prices, added 1.19 dollars (90p), or 2.8%, to 44.29 dollars (£33.79) a barrel in London. It rose 81 cents the previous session to close at $44.29.
The Australian dollar hovered near a 3-week high of $0.7641, awaiting the Reserve Bank of Australia’s monetary policy statement due later in the day.
However, silver futures for September delivery SIU6, -0.35% trading was muted, with the metal slipping 2 cents, or 0.3%, to trade at $20.41 an ounce.
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Oil pulled back slightly after rallying overnight following a modest stockpile drop at the US delivery hub for crude futures.
