Sterling falls to seven-month low before Bank of England meeting

The pound sank to a seven-month low on Thursday before a Bank of England monetary policy meeting where officials could indicate if interest rates will be raised this year despite a weak spell for the economy.

No economists polled by Reuters expect the BoE to raise rates and some are getting cold feet about their forecasts for a rate rise in August, which would be only the second increase by the central bank since the 2008 financial crisis.

Market expectations are for a less than 40 percent likelihood of the Bank of England’s Monetary Policy Committee (MPC) raising interest rates by August, with about an 80 percent chance of one more rate hike by the end of 2018.

Sterling on Thursday fell to $1.3125, its lowest since mid-November 2017.

Against the euro, the British currency traded flat at 87.92 pence reflecting reluctance among investors to take out big positions before the BoE meeting.

Some analysts said that recent tentative signs of a recovery in the economy could prompt the central bank to offer stronger guidance on rates which would lift the pound.

Sterling rebounded modestly against the dollar and the euro on Wednesday after Prime Minister Theresa May won a crucial Brexit vote in parliament, averting a rebellion that could have undermined her authority.

May needed the lower House of Commons to pass her EU withdrawal bill - legislation that will prepare Britain for a divorce next March that will end its more than four-decade-old trading and political partnership with the rest of Europe.

Traders are divided as to whether May’s victory will boost her chances of securing a more favourable Brexit deal with the European Union given that many more months of negotiations remain.

Sterling falls to lowest against dollar since November

European Stock Markets

The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy. 

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede and the economy shows signs of prolonged weakness.

Renewed concerns about whether Britain can secure the Brexit deal it wants have also impacted the currency.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

Investors are only pricing in a one-in-three chance of the Bank of England raising borrowing costs in August, the next time it updates its economic forecasts.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and at GMT 1515 on Tuesday traded up 0.3 percent at 87.12 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with the European Union after it leaves the EU in March 2019 have undermined sentiment towards the pound ahead of an EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Sterling slumps to its lowest since December as dollar strengthens

European Stock Markets

Sterling slumped to its lowest since December on Monday as the dollar surged and investors prepared for data this week that could determine whether the Bank of England raises interest rates in 2018. 

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent on Monday and fell below $1.34 for the first time since December , before trimming some of its losses.

The currency was headed for its biggest daily loss in three weeks as the dollar rose broadly on reports that the United States was putting its trade war with China “on hold”.

The pound also fell versus the euro, sliding 0.2 percent to 87.64 pence.

Important data on the British economy is due out this week including inflation on Wednesday and gross domestic product on Friday.

The figures will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

Risks around the sort of post-divorce relationship Britain can agree with the EU weighed heavily on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.

Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party reportedly are bracing themselves for a snap autumn parliamentary election amid fears that the Brexit deadlock will become insurmountable.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall towards the $1.3300 level in the short term.

Sterling headed for fourth successive weekly decline after BoE holds rates

European Stock Markets

Sterling on Friday headed for its fourth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, after the Bank of England held rates and cut its economic growth projections. 

The pound fell sharply after the BoE on Thursday held interest rates steady as expected but cut its growth and inflation projections for this year and next.

The decision bred scepticism among investors over whether the central bank would hike rates at all this year after weeks of declines caused by weaker-than-expected economic data that was partly blamed on bad weather.

Sterling has tumbled to $1.35 in recent weeks from its post-Brexit vote highs of close to $1.44 and erased its gains against the dollar for the year.

The pound recovered somewhat on Thursday after Bank of England Governor Mark Carney told the BBC that he expected a rate rise over the course of the next year if there were no shocks to the economy.

On Friday the currency rose 0.1 percent versus the dollar at $1.3533 and increased 0.1 percent against the euro at 88.090 pence.

Some analysts criticised Mark Carney for the decision to hold rates and for a month earlier making comments that the market perceived as a signal for a near-certain May rate hike.

Carney told reporters on Thursday the bank’s earlier guidance on tighter policy had been conditioned on February inflation projections but the economy had not fulfilled those conditions.

But other analysts said that doubts over the BoE’s message would fade, especially if data in the next months showed the British economy gaining momentum.

Sterling steadies before BoE rate decision

European Stock Markets

The pound held steady on Thursday near four-month lows as traders shrugged off data showing industrial output barely rose in March and readied for a Bank of England policy decision expected to keep interest rates on hold. 

Sterling has tumbled in recent weeks from its post-Brexit vote highs of close to $1.44 to below $1.35, erasing its gains against the dollar for the year as investors unwound bets on a rate increase and

British economic data came in worse than expected.

Data published on Thursday showed industrial output inched up by 0.1 percent month-on-month in March, the same pace as in February and slightly below the consensus for growth of 0.2 percent in a Reuters poll of economists.

That confirms the view of a British economy struggling to find momentum during a difficult start to the year.

Almost all analysts and economists expect the BoE to leave rates unchanged when it announces its decision at 1100 GMT.

The pound slipped 0.1 percent to $1.3538 versus the dollar, unchanged from before the data was released.

It fell 0.2 percent to 87.670 pence per euro against a broadly stronger single currency.

RBC chief currency strategist Adam Cole noted that forwards markets still attached a close to 100 percent probability of a rate hike at some point this year.

The language in the BoE’s commentary on Thursday’s decision was likely to signal “that a rate hike at some point this year remains on the table.”

Sterling languishes at near four-month low as it waits BoE hike decision

European Stock Markets

The British pound languished near a four-month low on Wednesday as the dollar rallied and traders sold sterling the day before a Bank of England meeting where interest rates are expected to be kept on hold.

UK economic data have taken a turn for the worse in recent weeks, causing traders to almost discount the possibility of an interest rate hike on Thursday.

In addition, worries about conflict within the British government over what its relationship with the European Union should look like after Brexit have hurt sterling.

Traders will scrutinise Thursday’s decision for any indication of whether a rate hike is still likely this year.

A narrow vote split among the nine-member Monetary Policy Committee, led by Governor Mark Carney, could prepare markets for a hike in August.

But analysts said the BoE could find it challenging to explain its future approach to a market that has within a month cut its expectation of a May hike from 90 to around 10 percent.

However, analysts at ING said in a note that the pound’s fall in recent weeks looked overcooked, and that they remained bullish for the medium-term.

The pound was down 0.2 percent on Wednesday at $1.3520, close to Tuesday’s lows — its weakest since Jan. 11.

Sterling is at risk of losing its status as one of the best performing G10 currencies this year, partly because investors have recently started betting on the dollar rising on the strength of higher interest rates.

Data released late last week showed investors had cut their net long positions in the pound over the past fortnight by the biggest amount since March 2017, although net long positions remain near a four-year high.

Tensions within Britain’s governing Conservative Party over how to agree terms of exit from the European Union have also re-emerged as a political risk for the pound.

Foreign Secretary Boris Johnson described as “crazy” a proposed customs partnership that is believed to be Prime Minister Theresa May’s preferred option for relations with the EU after Britain leaves the bloc.

Against the euro, sterling gained 0.1 percent to 87.510 pence as the stronger dollar pulled the single currency down across the board.

Sterling slips to five-week lows with investors wary about British currency outlook

European Stock Markets

Sterling slipped to a five-week low on Thursday as investors grew wary about the outlook for the British currency before a central bank meeting next month and the dollar consolidated gains after a sharp rally this week. 

The British currency edged 0.1 percent lower at $1.3915, taking its losses so far this month to more than half a percent. While the magnitude of the losses are not big, sterling’s weakness in April is a concern because historically it has proved to be a strong seasonal factor for the currency.

The release will be the last key data issued before the Bank of England’s Monetary Policy Committee meeting early next month, and markets are split over whether the central bank will raise interest rates after the central bank chief dampened expectations of a hike.


Governor Mark Carney dented confidence that a rate hike would happen when he said last week that Britain’s economic data was “mixed” and that there were several other MPC meetings later this year.
Market expectations for a rate hike have slipped back to a more uncertain 50 percent from an almost certain 80 percent a couple of weeks ago, according to swap markets.

Against the euro, which some analysts say is currently a better gauge of demand for pounds given there has been considerable dollar-specific news this week, sterling weakened 0.2 percent to 87.45 pence per euro.

The dollar settled at 2-1/2 month highs against the Japanese yen on Thursday as a rise in benchmark 10-year U.S. Treasury yields above the 3 percent line this week rattled currency bears.

Chance of May BoE rate hike down but not out

European Stock Markets

Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month - but economists say it would be wrong to rule out an increase. 

Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.


Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting.

In March, two members of the BoE’s Monetary Policy Committee voted for a rate rise and economists were confident an MPC majority would back a rise to 0.75 percent in May.

This all changed on Thursday when Carney alluded to “mixed data”, differences of opinion on the MPC and the possibility of rate rises later in the year in a BBC interview.

Sterling tumbled by more than a cent, short-dated bond yields recorded their biggest fall this year, and financial markets chopped the odds on a May rate rise to less than 40 percent from 65 percent.

Investors should not lose track of the bigger picture, said Mike Amey, a fund manager at PIMCO, the world’s largest bond investor, as market pricing of the chance of a May move crept back up to around 50 percent.

PIMCO expects BoE rates to rise once or twice both this year and next - compared with the single rate rises in November 2018 and August 2019 factored in by markets.

April purchasing managers’ surveys from British businesses will probably be more important for the BoE’s May decision than the weather-affected preliminary first-quarter gross domestic product figures on Friday, Amey added.

Overall, the economy has held up better than most economists expected after the June 2016 Brexit vote, despite lagging the global rebound. And the high inflation that hit consumer demand last year is slowing as sterling recoups some of its losses.

Unemployment has fallen to a 43-year low of 4.2 percent, and a record proportion of Britons are in work.

Komileva said she saw little case to delay a rate rise.


The BoE’s signals on rates felt more arbitrary than those of the U.S. Federal Reserve or the European Central Bank, she said.

Fed policymakers make individual projections for rates while ECB President Mario Draghi regularly offers hints on policy.

This is not the first time markets have been jolted by Carney. In 2013 the BoE linked policy to the jobless rate, only for unemployment to fall far faster than policymakers forecast. And in mid-2014 and mid-2015 Carney suggested rates might rise sooner than markets expected - only to backtrack both times.

Just two months ago, Carney had said he felt he could stop giving hints on rates because markets understood the BoE’s thinking well enough to draw their own conclusions.

After that, Brexit worries eased as Britain secured an outline Brexit transition deal until the end of 2020, and economists said signs of economic weakness were the result of freak snow storms, adding to the sense that another rate hike was coming.

The missing piece of the picture for the BoE is wage growth, the key factor for inflation pressure. At an annual 2.8 percent, wage growth is roughly in line with BoE expectations but remains weak by historic standards, especially given low unemployment.

Former BoE policymaker David Blanchflower thinks the central bank should hold off raising rates and look harder at the number of people in part-time work but who want to work longer hours, suggesting wages are unlikely to pick up sharply.

The BoE might feel it has more time to see if wages rise after a bigger-than-expected fall in inflation in March. Furthermore, sterling’s recent recovery should curb inflation pressures.

Even Michael Saunders - who voted for a rate rise last month and looks set to do so again - has said the muted response of wages to the fall in unemployment defied simple formulae.
For now, economists are still trying to gauge whether Carney’s comments were a warning that rates are unlikely to rise in May.

Alan Clarke at Scotiabank, who has dropped his forecast of a May rate rise, said they were probably intended to stop MPC members feeling they were committed to a hike next month.

Komileva said they might have the effect of dissuading wavering MPC members from backing a rate rise for fear of wrong-footing markets again.

But HSBC economists Simon Wells and Elizabeth Martins - who for now are holding with their view of a May rate rise - said they would take the comments with a grain of salt.

The British pound fell against the major currencies

The British pound fell against the major currencies following softer than expected UK monthly CPI figures.

March's CPI was down on expectations with the Office for National Statistics saying most of the downward momentum came from women's clothing which rose at a slower than expected pace.

However CBA analysts believe that this latest data set won't be enough to dissuade the Bank of England from raising rates at its May meeting.

UK average weekly earnings data over the coming months will also influence the Bank's decision to increase rates. 

The British pound has dropped 1.3 per cent from it's post-Brexit high earlier this week and is now just 4.6 per cent down from its pre-Brexit price.

Bank of England mustn't dally over next rate hike: McCafferty

European Stock Markets

The Bank of England should not delay raising interest rates again, one of its top policymakers said, pointing to the possibility of faster pay rises and the recent strong pick-up in the world economy. 

Ian McCafferty told that after lagging behind inflation for much of the past decade, wage growth might prove stronger than most of his colleagues thought, adding to pressure on inflation that is running above the BoE’s target.

“We shouldn’t dally when it comes to tightening policy modestly,” McCafferty, one of two members of the nine-strong Monetary Policy Committee who voted for a rate rise last month, said in an interview.

The BoE raised rates for the first time in more than a decade in November, saying that Britain, while growing more slowly than other rich countries because of the impact of the 2016 Brexit vote, was more prone to inflation than in the past.

Three months later, in February, the BoE said it would probably need to raise rates a bit earlier and by somewhat more than it had previously signaled, pushing up the value of sterling and leaving investors betting on a rate hike in May.

McCafferty said he could not be certain about whether to vote again for a rate rise until May’s policy meeting, but there had been no data or Brexit developments so far to make him think he was wrong in March to vote to raise rates to 0.75 percent.

The former chief economic adviser to the Confederation of British Industry has been in the minority of BoE policymakers pushing for a rate hike previously in the past four years.

Speaking in his office in the BoE on Monday, adorned with books on the economy and a framed page of The Times newspaper with a headline about inflation, McCafferty said that as well as the boost from the world economy’s strong recovery, he thought there was now no slack left in Britain’s labor market.

Unemployment at its lowest rate since 1975, skill shortages and signs that employers were resorting to higher wage offers to lure staff from rival firms or stop them from leaving would also create inflation pressure.

And the “jury is still out” on whether the inflationary hit from the fall in the value of the pound after the Brexit vote in 2016 would fade as quickly as expected, he said.

While the BoE had been wrong in the past about wages finally gaining momentum, labor market surveys so far this year showed that the recent recovery in the headline rate of growth of pay to nearly 3 percent looked more sustainable this time, he said.

Often called one of the BoE’s most hawkish policymakers, McCafferty said there had been a case for following up November’s rate move with another hike as early as February.

But he held off to avoid surprising households who had been told by the BoE that it plans to raise rates only gradually.

McCafferty said he did not think the BoE should provide more detailed guidance on the future level of rates, such as the individual forecasts given by U.S. central bankers.

Typically the BoE indicates its thinking by giving forecasts for inflation based on rates staying unchanged and based on the path expected by financial markets. If the BoE forecasts above-target inflation, that shows rates may need to rise.

Last month Gertjan Vlieghe, a fellow MPC member, was unusually specific when he said he expected rates to rise by 0.25-0.50 percentage points a year for the next three years.

On Brexit, McCafferty said British exporters remained in “a sweet spot”, helped by the weakness of the pound while concerns that they might lose business with supply chain customers elsewhere in the EU had so far proven overdone.

But there were signs that British companies were wary about making long-term investments, and potential Brexit stumbling blocks would remain, he said. 

Sterling set for best quarter since year before Brexit vote

European Stock Markets

Sterling edged down on Thursday as end-of-quarter portfolio rebalancing by investors outweighed encouraging economic data, but the currency is still set for its best quarter against the dollar in almost three years. 

Hopes of a transition deal on Britain’s departure from the European Union - which was eventually agreed earlier this month - and growing expectations that the Bank of England could soon raise interest rates have propelled the pound this year to its highest since the June 2016 Brexit referendum.

Sterling is up roughly 3.9 percent versus the dollar this quarter, its best performance since mid-2015. Against the euro it has risen 1.4 percent since January, and is heading for its best quarter since 2016.

Some investors believe sterling’s good run can extend into the next quarter.

On Thursday, the end-of-quarter flows by investors overshadowed data showing a narrower UK current account gap and an upgrade in fourth-quarter business investment.

Dollar strength and the sense among investors that the British currency may have got ahead of itself have undermined the pound’s rally this week, and some traders say better news is needed next quarter to justify another leg higher.

The pound lost 0.3 percent versus the dollar to $1.4030, bringing week-to-date losses to 0.7 percent.

“On the whole, Brexit concerns have taken something of a backseat since last week and I think markets are focused on data.”

Data on Thursday upgraded Britain’s fourth-quarter business investment to 0.3 percent from flat earlier. Fourth-quarter GDP growth was left unrevised at 0.4 percent while the current account deficit was revised down sharply.

Versus the euro, the pound fell 0.2 percent on Thursday to 87.64 pence per euro.

Pound Faces Next Brexit Barrier Amid Cautious Wait for Progress

European Stock Markets

As Brexit talks enter a crucial phase this week, pound traders are cautiously waiting for signs of progress toward a transition deal. Even if those expectations are met, any gains in the currency may be short-lived.

While U.K. Brexit Secretary David Davis has expressed confidence that a deal on the exit terms and the transitional period was “within reach” ahead of the March 22-23 European Union summit, markets remain far from convinced. BlackRock Inc. said last week that sterling’s near-term direction remains unclear even as a big move is expected, while a Barclays Plc survey of investors found that most respondents didn’t expect an agreement until at least October.

With Davis and his European counterpart due to give a press conference on Monday, Nomura International Plc expects an accord this week and recommends a long position in the U.K. currency against its Canadian counterpart. Aberdeen Standard Investments and Rabobank see any pound appreciation as brief, given longer-term challenges faced by Britain including that of reaching a post-Brexit trade pact with the EU.
 
The Bank of England’s meeting on Thursday is also in focus, with investors watching for hints that the central bank is ready to raise interest rates as early as May.

The U.K. currency gained 0.2 percent to $1.3967 as of 9:34 a.m. London time on Monday, and was up 0.3 percent to 87.93 pence per euro. The yield on 10-year U.K. government bonds advanced 3 basis points to 1.46 percent.
Stumbling Blocks

The biggest stumbling block to the transition deal so far has been the Irish border, with U.K. Prime Minister Theresa May saying, following the first draft, that no U.K. leader could accept such a deal. Although it’s looking more likely that a compromise will be reached in time for the EU summit, this could mean the problem resurfaces later in the talks.

Ahead of the BOE meeting, a hawkish shift of stance by the central bank is largely priced in for sterling. Market pricing currently suggest an almost 82 percent chance the bank will raise borrowing rates in May, up from just 5 percent at the start of February.
Higher Stakes

That probability could move up to almost 100 percent if a transition deal with the EU is reached, provoking a sell-off in front-end gilts, according to John Wraith, head of macro rates strategy in London at UBS Group AG.

Sterling recovers after hitting 3-month low against Euro

European Stock Markets

Sterling touched a three-month low against the euro on Wednesday before rebounding, as the release of the European Union’s draft guidelines for a future trade deal with Britain underlined the gap between the two sides as they negotiate a Brexit deal. 

British finance minister Philip Hammond said that financial services should be at the heart of a new trade deal but the EU has rejected that approach and wants to limit the sector’s market access after Brexit. 

Brussels has refused to let Britain pick and choose the parts of the EU’s single market to which it can continue to have free access, chief among them the United Kingdom’s large financial services industry. 

Britain is racing to clinch a Brexit transition deal that Hammond repeated on Wednesday would be concluded later this month, but uncertainty about whether that is feasible has weighed on the pound, even as more hawkish signals from the Bank of England about rate rises this year have supported the pound. 

Sterling slipped as much as 0.4 percent against a broadly stronger euro ahead of the speeches, hitting 89.68 pence per euro, its weakest since Nov. 28. It later recovered and was up 0.1 percent at 89.22 pence per euro as the single currency sold off broadly. 

Against the dollar, the pound traded flat at $1.3892. 

“We are still looking at a vast divide between what Britain wants and where the EU expects the UK to be,” said Ken Odeluga, a market analyst at City Index. 

Analysts said sterling was also being weakened by a risk-off mood across markets on the back of worries about a trade war led by U.S. President Donald Trump’s administration, and by concerns over the impact that such a trade war might have on Britain. 

Sterling is set to trade slightly higher in a year’s time, near the $1.41 level, less than a month before Britain is formally due to leave the EU, indicating currency strategists remain optimistic London and Brussels can manage a smooth exit and transition deal. 

Earlier, data showed British house prices rose at their slowest annual pace in nearly five years last month, in the latest sign of weakening in the housing market as Britain approaches its departure from the European Union.

Sterling bounces off one-week lows as dollar skids

European Stock Markets

Sterling rose from a one-week low on Thursday as the dollar slumped towards a session low, although renewed concerns over the state of play in Brexit negotiations checked the British currency’s gains. 

Despite sterling’s weakness this week, it is still up nearly 3 percent against the dollar this year as investors have ramped up bets that the Bank of England may raise interest rates more than previously forecast. 

Morgan Stanley strategists said long positions in sterling were the largest on its G10 currency position monitor as market expectations for a rate hike as early as May grew. 

The dollar slipped against a basket of major currencies as its rally from a three-year low last week ran out of steam, and the yen soared as heightened volatility led investors to favour the Japanese currency. [FRX/]

The dollar index, which measures the greenback against a basket of six major currencies, was down 0.22 percent at 89.805. Through Wednesday, the index gained nearly 2 percent since hitting a three-year low of 88.253 on Friday. 

The currency has also come under pressure as debate on the UK’s Brexit strategy intensified before a meeting of EU leaders on March 22-23, when the bloc’s leaders may or may not agree to a transition period following Britain’s scheduled departure from the EU in March 2019. 

On Thursday, the European Union said it would not agree to a post-Brexit deal in which Britain would stick to the bloc’s rules in some areas, diverge moderately in others and go for distinctively different solutions for the rest. 

However, a shift in market expectations of the BOE’s policy stance has offered some support to the pound in recent sessions. 

In an annual report to parliament on Wednesday, Bank of England’s chief economist Andy Haldane said the risks to the BoE’s latest projections, for both UK demand and inflation, were to the upside.

He said both the global economy and Britain could well do better than the BoE’s most recent forecasts.

Most economists now expect the BoE to raise rates to 0.75 percent in May, and financial markets see a roughly 70 percent chance of a further rise this year, taking rates to 1 percent.

Sterling rose 0.2 percent to $1.3940 on Thursday, rising from an intraday low of $1.3858 and nearing a post-Brexit vote high of above $1.43 hit in late January.

It is up nearly half a percent from the day’s lows. Against the euro, the pound was broadly steady around 88.36 pence and was stuck in well-worn trading ranges.

LONDON MARKET: FTSE 100 Hits New High Despite Micro Focus Drag

European Stock Markets

The FTSE 100 index was flat Monday midday, while the FTSE 250 was slightly lower, both retreating after setting new record highs earlier in the session.

The FTSE 100 is little-changed so far today, but having touched a new record at the beginning of the session the broadly bullish trend remains intact. Given the slew of trading updates this week we can expect a healthy dose of volatility in individual names, even if the wider index retains the 2017 characteristic of outward calm," said IG chief market analyst Chris Beauchamp.

London's index of large-caps remained flat despite facing a significant drag from Micro Focus International, as shares in the software maker hit their lowest levels since August after the firm's interim results disappointed traders.

Another company experiencing a "dose of volatility" on Monday was Mothercare, shares dropping to an all-time low after a weak Christmas performance and subsequent downgraded guidance. This comes as other London-listed retailers prepare to release their Christmas results over the coming weeks.

The FTSE 100 index was flat, just 1.68 points higher at 7,725.90 Monday midday, having hit a fresh all-time high of 7,733.39 earlier in the session.

The mid-cap FTSE 250 index was down 0.1% at 20,920.40, having reached its own all-time high of 20,984.76 earlier on Monday. The AIM All-Share index was flat at 1,067.66.

The BATS UK 100 index was up 0.2% at 13,125.20. The BATS 250 was up 0.1% at 19,022.78, and the BATS Small Companies was flat at 12,944.31.

In UK data on Monday, preliminary data from Halifax and IHS Markit showed house price growth slowed sharply in December and prices declined from the previous month.

The house price index rose 2.7% year-on-year following 3.9% increase in the previous month. The latest increase was the smallest since August, when prices grew 2.6%.

In the October-December quarter, house prices rose 1.3% from the previous three months ending September. On a monthly basis, house prices fell 0.6% from November,when they rose 0.3%. The latest fall was the first since June.


Blue-chip housebuilders were lower on Monday, with Taylor Wimpey down 1.4%, Persimmon down 1.1% and Barratt Developments down 0.9%. FTSE 250 homebuilders such as Crest Nicholson and Redrow were down 1.2% and 0.9%, respectively.

Sterling was flat against the dollar, quoted at USD1.3545 Monday midday, compared to USD1.3565 at the London equities close on Friday.

On the continent, the CAC 40 stock index in Paris was up 0.4% while the DAX 30 in Frankfurt was also up 0.4% Monday midday.

Survey results from European Commission on Monday showed eurozone economic confidence improved further in December, rising more-than-expected to 116 from 114.6 in November. This was the highest score since October 2000 and above the forecast of 114.7.

The industrial confidence indicator came in at 9.1 versus 8.1 a month ago. The expected score was 8.4.

In addition, preliminary data from Eurostat on Monday showed eurozone retail sales rebounded strongly in November, surpassing economists' expectations to grow a seasonally-adjusted 1.5%, from a 1.1% fall in October. Economists had expected 1.2% growth in November.

The latest sales growth was the fastest since October 2016, when sales grew 2%. Growth was led by a 2.3% increase in the non-food products segment, within which sales of textiles, clothing and footwear surged 5.9%.

The euro was quoted at USD1.1990 Monday midday, down from USD1.2033 at the European equities close on Friday.

Stocks in New York were called for a higher open on Monday, with the Dow Jones Industrial Average seen up 0.2%, and both the S&P 500 index and Nasdaq Composite called to open flat.

In the afternoon, US consumer credit change figures are at 2000 GMT. Additionally, there are several speakers from the Federal Reserve in Monday's calendar, with Federal Open Market Committee members Raphael Bostic to speak at 1740 GMT and John Williams at 1835 GMT. Boston Fed President Eric Rosengren speaks at 2100 GMT.

"Williams and Rostic will both be voters on the FOMC this year and so their views will be very closely monitored and could have an impact, although with Jerome Powell set to succeed Janet Yellen as Chair next month and a number of roles still to be filled, there remains an element of uncertainty when it comes to Fed policy going forward," noted Oanda senior market analyst Craig Erlam.

Later in the week, earnings season on Wall Street begins with fourth-quarter results on Friday from banks JPMorgan and Wells Fargo as well as asset management firm BlackRock.

On the London Stock Exchange at midday, Micro Focus International was rooted to the bottom of the FTSE 100, down 17%.

Reported revenue rose by 80% for the six months to October 31, to USD1.23 billion from the USD684.7 million recorded the same period in the prior year, USD569.8 million of this generated by HPE Software.

However, stripping out the merger with HPE, revenue fell 2.9% year-on-year to USD664.7 million from USD684.7 million. Ahead, Micro Focus said it expect revenue for the year to October 2018, its new year-end date, to fall between 2% and 4% on a pro forma basis.

Also lower on Monday was Paddy Power Betfair, down 1.9%. Morgan Stanley downgraded the bookmaker to Underweight from Equal Weight.

At the other end of the index of large-caps was G4S, up 4.8%. UBS upgraded the security services provider to Buy from Neutral, and promoted the firm to one of its top picks in the European Support Services sector.

Experian, also upgraded by UBS to Buy from Neutral and added as a top pick in the sector, was up 1.2%.

In the FTSE 250, BBA Aviation was up 3.1% after Citigroup raised the aviation services company to Buy from Neutral.

Towards the other end of the index was GCP Infrastructure Investments, down 2.5% at 123.77 pence at midday.

The fund said it intends to raise GBP60 million via placing new ordinary shares under the company's 2017 placing programme. The company plans to place new shares at 122.0 pence per share, a discount of 5.0p per share to the closing market price of 127.0p on Friday.

Turning to the other big faller of the day, Mothercare, IG's Beauchamp said: "Online sales are supposed to be a firm's salvation, but even here the reverse-Midas touch applies. Other retailers are not too badly affected, however, with many investors taking the view that Mothercare remains a special basket-case, unable to sort out its problems despite years of effort."

Mothercare was down 25% at 46.40p on Monday, having hit an all-time low of 42.05p earlier in the session. Shares in the firm traded as high as 134.00p in 2017.

The mother and baby products retailer said it expects profit for its financial year to fall after a disappointing Christmas, with UK trading particularly weak. Trading in the UK saw like-for-like sales down 7.2%. Online sales, which now represent around 42% of total UK sales, fell 6.9%.

Mothercare lowered its estimate for adjusted profit for the year ending March 25 to between GBP1.0 million and GBP5.0 million, from the GBP19.7 million reported in 2017.

McBride was another Main Market constituent having a poor day on Monday, dropping 13%.

The consumer goods manufacturer warned first half adjusted operating profit will be lower than board expectations due to lower sales and a number of cost challenges including raw materials, labour market pressures and transportation costs.

Carillion was up 18% after confirming it intends to presenting a business plan to creditors on Wednesday in an attempt to restructure its balance sheet.

Britain's digital banks - profitable or just popular?

British app-based bank Monzo and others like it want to make money by allowing other firms access to their customers rather than lending to them, but this is an untested path to profitability.

Monzo’s user numbers soared by 300 percent to 450,000 in nine months this year, which has attracted investors and more than doubled its valuation to $336 million (£251 million).

The bank’s distinctive coral-coloured card has become commonplace in the wallets of the young and tech savvy.

But this growth has come at a cost: until recently every customer meant a loss of 50 pounds as Monzo offered services such as overseas cash withdrawals for free.

BoE to allow EU banks to operate in UK as normal after Brexit

European Stock Markets

The Bank of England will allow European banks to continue selling their services in the United Kingdom without having to create expensive subsidiaries after Britain leaves the European Union.

The decision, if confirmed, would mean European banks offering wholesale services would not face new post-Brexit hurdles to operating in London , which vies with New York for the title of the world’s financial capital.

A BoE spokesman declined to comment on the report. The central bank is due to publish its approach to future supervision of foreign banks, insurers and clearing houses at 1300 GMT.

Financial services is Britain’s single biggest tax-earning sector, bringing over 70 billion pounds a year into government coffers. If foreign banks began leaving, the City’s fabric would begin to unravel, industry officials have said.

The EU has proposed that, as a last resort, clearing of euro denominated derivatives done mainly in London should move to the euro zone after Brexit.

By allowing branches of EU banks in London to be supervised by their home regulator, Britain will be hoping the bloc would in return allow euro clearing to remain in Britain.

The UK gesture could also soften European Commission plans, due to be published later on Wednesday, to stiffen the conditions for allowing investment banks from outside the EU to operate inside the bloc. Many of those banks, like Goldman Sachs and Morgan Stanley have their main European operations in London at present.

An unidentified government and industry source is saying they supported the decision. A later version of the BBC story removed a reference to the BoE proposing that EU banks would be allowed to operate as usual even if no divorce deal was struck between London and Brussels.

More than 100 banks operating in London are branches of lenders headquartered elsewhere in the EU. Currently, they operate in Britain under EU “passporting” rules which are due to expire when Britain leaves the bloc in March 2019.

The BoE had previously said it would let banks know before the end of the year whether these branches must reapply for branch licences to operate after Brexit, or would need to be turned into subsidiaries, an option Boston Consulting Group has said could cost banks up to 40 billion euros.

Switching from being a branch to a subsidiary means having to build up buffers of capital and cash locally, and come under the direct supervision of the Bank of England.
EU retail banks that hold UK customer deposits above a certain threshold would have to become subsidiaries, the BoE has already said.

British Prime Minister Theresa May has said Britain will leave the EU’s single market, raising questions about how companies in Britain will do business in the bloc after Brexit, and how European companies can operate in Britain.

UK banks could cope with "disorderly" Brexit, Bank of England says

European Stock Markets

Britain’s banks could cope with a “disorderly” Brexit without needing to curb lending or be bailed out by taxpayers, the Bank of England said on Tuesday after carrying out its annual health check on lenders. 

For the first time since it started ‘stress-testing’ banks in 2014, none of Britain’s major lenders would need to raise extra capital, the BoE said. The stress tests are primarily calculated on the basis of the amount of capital banks held at the start of 2017.

Barclays and Royal Bank of Scotland failed the test on this basis, but do not need to raise extra capital now as they increased capital during the course of year.

The results will come as a partial relief to Chancellor Philip Hammond, who is looking to sell 3 billion pounds of public holdings of RBS shares during the next financial year to help reduce public debt.

HSBC, Lloyds Banking Group, Santander UK, Standard Chartered and the Nationwide Building Society all passed the test without reservations.

Britain’s economy has lost momentum this year as higher inflation - largely due to the fall in the pound after June 2016’s Brexit vote - eats into households’ disposable income.

Britain is due to leave the European Union in March 2019, and the BoE’s Financial Policy Committee reiterated that a “timely agreement” on an implementation period for transitional arrangements would reduce financial stability risks. However, even if Britain crashed out of the EU, the BoE said the latest stress test suggested banks were strong enough to cope as it published its half-yearly Financial Stability Report.

Responding to the BoE announcement, RBS said it continued to make progress towards being a “stress resilient” bank. Barclays noted that it did not need to raise fresh capital.

The BoE said British and European Union lawmakers needed to pass new laws to ensure there was no disruption to 26 trillion pounds worth of cross-border derivative contracts and 36 million insurance contracts held by EU and British policyholders. The BoE also said it was not clear if the banking system could cope easily with a disorderly Brexit if it came at the same time as a severe global recession and further substantial fines for financial misconduct at banks.

The central bank said it was pressing on with plans to raise a risk buffer to 1 percent from 0.5 percent with binding effect from November 2018. This extra cushion was already covered by capital banks held in excess of the regulatory minimum.

The BoE said it would consider in the first half of next year whether this buffer needed to be raised further. 

The 1 percent rate of the counter-cyclical capital buffer corresponds with what the BoE views as a “standard” risk environment. Aside from Brexit, Britain faced “material” risks from global debt levels, asset valuations and misconduct.

Domestic consumer credit growth represented a “pocket of risk”, the BoE said, echoing language used before. But it added that borrowing was not that high relative to income.

Britain’s current account deficit - which government forecasters expect to exceed 4 percent of GDP for the foreseeable future - was also a material risk, the BoE said. Investors’ appetite for British assets could slump if the growth outlook darkened or there was a loss of confidence in British economic policy or its openness to trade and investment, the BoE said.

The central bank said it would set out its policy for approving EU banks to operate in Britain by the end of the year. Separately, it is urging banks to consider long-term risks to their business models from new financial technology and slow economic growth.

Global policymakers take spotlight as Euro Pauses

European Stock Markets

The euro drifted lower on Monday, consolidating below a one-week high tested in the previous session as investors moved to the sidelines before a central bank conference on Tuesday where central bankers may share their thoughts on the global economy. 

European Central Bank chief Mario Draghi, U.S. Federal Reserve Chair Janet Yellen, Bank of Japan Governor Haruhiko Kuroda and Bank of England head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt. 

Despite last week’s wobble, global stocks remain poised near record highs with market gauges of volatility near recent lows, indicating investors remain bullish in the closing weeks of the year despite double digit returns.

Draghi hinted at tweaks in the central bank’s aggressive stimulus policy at a major forum in Portugal in June, fuelling a euro rally and prompting him to soften his stance.

The single currency climbed more than 8 percent since his comments at Sintra before peaking out at more than a 2-1/2 year high near $1.21 in early September.

It has declined more than 3.5 percent since and was trading a shade weaker at $1.1650 against the greenback on Monday.

The dollar continued to enjoy the support of last week’s spike in U.S. bonds yields, with sterling - battered by political headwinds - the biggest loser.

Sterling was down 0.7 percent at $1.3087, dropping away from an eight-day peak of $1.3229 scaled on Friday on better-than-expected British industry data.

The Sunday Times reported that 40 members of parliament from British Prime Minister Theresa May’s Conservative Party have agreed to sign a letter of no-confidence in her.

That is eight short of the number needed to trigger a leadership contest, through which May could be forced from office.

Currency strategists predict further pain for the pound.

Morgan Stanley strategists said in a note that sterling was trading 2 percent above levels that 10-year differentials between UK and U.S. yields suggested, while positioning data showed leveraged investors were still net long sterling assets.

The dollar index against a basket of six major currencies was 0.25 percent higher at 94.617, following a 6-basis-point rise in long-term U.S. Treasury yields on Friday.

The index ended the previous week with a loss of 0.6 percent amid investor disappointment that a proposed U.S. corporate tax cut could be delayed to 2019.

Spreads between 10-year U.S. and German bond yields were trading at 198 basis points, not far from a six-month high of 204 basis points hit in late October.

Sterling bounce checked as Brexit, scandal in focus

European Stock Markets

The pound bounced on Monday after three consecutive weeks of losses, though signs of instability in Britain’s governing Conservative party and uncertainty around Brexit negotiations checked gains.

Following Thursday’s quarter percent interest rate rise by the Bank of England - its first in over a decade - investors have been watching closely for any developments that could affect the bank’s plans for further rate hikes.

 

Sterling was up 0.2 percent against the dollar on Monday at $1.3112, having fallen for three straight weeks. Against the euro, it was up 0.4 percent at 88.42 pence.

The central bank said last week it expected to raise rates just two more times over the next three years, an announcement that drove the biggest single-day loss for sterling since the week after the Brexit vote in June 2016.

Britain’s economy would grow more slowly in the short term if the country failed to secure a future trading deal with Europe, and that uncertainty over the progress of divorce talks was impeding British business.

Almost two in three British firms will have contingency plans in place by March for the possibility that Britain leaves the EU without a deal, the Confederation of British Industry said on Sunday.

The government is struggling to contain a scandal about sexual harassment that has embroiled some of Britain’s political elite, raising concerns about Prime Minister Theresa May’s ability to lead the country towards a good deal.