Morning Bid: Rate cut hopes fan risk rally

By Thomson Reuters May 9, 2024 | 11:37 PM

A look at the day ahead in European and global markets from Ankur Banerjee

Investors are wearing their risk-on hats ahead of the weekend as renewed hopes of monetary easing take hold, a day after the Bank of England opened the door to rate cuts, taking London stocks to record highs and weighing on the sterling.

Key economic data, including first quarter GDP figures for the UK, will likely sway the markets on Friday.

Britain’s FTSE 100 has risen more than 8% so far this year, more than double its 3.8% gain in 2023 and the blue-chip index will aim to clock a sixth straight session of gains, a run not seen since August.

The pound slid to over a two-week low after BOE’s move but steadied at $1.2517 in Asian hours. The currency is down 1.6% this year against the dollar.

The BOE paved the way on Thursday for the start of interest rate cuts as soon as next month and Governor Andrew Bailey said there could be more reductions than investors expect.

Money market traders still see around a 45% chance of a rate cut at next month’s policy meeting, while around 58 basis points of easing is priced by year end.

That’s in stark contrast to U.S. rates with markets not expecting the Fed to move until at least November and are pricing in 45 bps of cuts this year.

However, the latest data showed signs of easing jobs market, boosting some expectations around rate cuts this year.

Meanwhile, yen wobbles continue with the currency was last at 155.70 per dollar, with Japanese officials reiterating that they’ll take appropriate actions when needed.

The more things change, the more they stay the same.

Bank of Japan data suggests Tokyo spent an estimated $60 billion to pull the frail yen off the 34 year low of 164.245 last week. Tokyo has not confirmed whether it intervened in the market last week.

In company news, the focus will be on the fallout of Spanish bank BBVA launching a hostile 12.23 billion euro ($13.1 billion) all-share takeover bid for Sabadell that triggered immediate government opposition.

Hostile takeovers are rare in European banking and can end up embroiled in months of negotiations as politicians weigh in and regulators worry about potential instability.

Elsewhere, Apple apologised after an advertisement for its latest iPad Pro model sparked criticism by showing an animation of musical instruments and other symbols of creativity being crushed, according to Ad Age magazine.

Key developments that could influence markets on Friday:

Economic events: UK prelim Q1 GDP, UK industrial March output and UK business investment

(By Ankur Banerjee; Editing by Sam Holmes)