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LONDON MARKET CLOSE: Dovish BoE, softer US data lift equities

European equities ended higher on Thursday, with the FTSE 100 and DAX 40 achieving record highs, the former boosted by a dovish tilt to the latest Bank of England decision.

Across the Atlantic, weaker US labour data hurt the dollar, amid the expectation that a cooler jobs market could presage an eventual rate cut by the BoE’s US counterpart.

At its May meeting, the BoE’s Monetary Policy Committee voted by a majority of 7 to 2 to maintain bank rate at 5.25%. Two members preferred to reduce the bank rate by 0.25 percentage points, to 5.00%.

Seven members, Bank of England Governor Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine Mann and Huw Pill voted in favour of the status quo.

Swati Dhingra and BoE Deputy Governor Dave Ramsden voted for a cut.

The FTSE 100 index ended up 27.30 points, 0.3% at 8,381.35. The FTSE 250 closed up 39.31 points, 0.2%, at 20,531.30, and the AIM All-Share ended up 3.87 points, 0.5%, at 783.70.

The Cboe UK 100 rose 0.4% to 837.33, the Cboe UK 250 also added 0.4% to 17,820.39, and the Cboe Small Companies climbed 0.3% to 16,039.15.

‘We think the [Monetary Policy Committee] has laid the groundwork for a June rate cut. But the path to a late spring rate cut will have to go through two rounds of inflation and wage data. Big beats in the forthcoming inflation data could further delay the start of a gradual easing cycle, but we think the bar for large hawkish surprises is very high given the tweaks to the bank’s near-term projections. Overall, we continue to expect the MPC to deliver three quarter-point rate cuts this year (75bps) – in line with our long-held view,’ Deutsche Bank analyst Sanjay Raja commented.

The Bank of England on Thursday moved a step nearer to a summer interest rate cut, but would not commit on whether this would come as soon as June.

‘The progress we are seeing in the key economic data is encouraging, but we are not yet at the point of cutting interest rates. We need to see more evidence that inflation will stay low before we can do that,’ the BoE said.

At a press conference following the decision, BoE Governor Andrew Bailey said ‘we are not yet at a point where we can cut bank rate’.

Sterling was quoted at $1.2511 late on Thursday afternoon, recovering from some of the weakness it showed immediately after the BoE decision, higher than $1.2495 at the London equities close on Wednesday.

Also rising were interest rate sensitive stocks in London. Property portal Rightmove added 1.8%, housebuilder Taylor Wimpey climbed 1.7% and estate agent Foxtons shot up 5.8%.

In European equities on Thursday, the CAC 40 in Paris added 0.7%, while the DAX 40 in Frankfurt surged 1.0%, hitting a record high.

The euro traded at $1.0775 at the time of the European equities close on Thursday, higher than $1.0749 late Wednesday. Against the yen, the dollar was quoted at JP¥155.61, up slightly versus JP¥155.55.

In New York, the Dow Jones Industrial Average was up 0.5%, the S&P 500 was 0.3% higher and the Nasdaq Composite also added 0.3%.

US initial jobless claims increased in the week just gone, coming in ahead of a market forecast, according to numbers on Thursday, suggesting the labour market is cooling.

The US Department of Labor said initial unemployment insurance claims totalled 231,000 in the week to May 4, rising from 209,000 a week prior. The prior reading was upwardly revised from 208,000.

The latest reading topped the FXStreet-cited market consensus of 210,000. It was also the highest number of initial jobless claims since the week to August 26, when they totalled 234,000.

Oxford Economics analyst Nancy Vanden Houten commented: ‘One week’s rise in initial jobless claims doesn’t change our forecast for the Fed to keep policy steady until September. The Fed likely welcomes evidence of a further loosening in labour market conditions, which will contribute to slowing in wage growth and inflation.

‘Unless the labour market weakens substantially, which we don’t expect, changes in Fed policy will be determined almost exclusively by readings on inflation. We think the Fed needs to see a string of reports showing inflation is heading back to a sustainable path toward 2% before lowering interest rates.’

In the FTSE 250, Harbour Energy rose 7.7%.

The oil and gas company said first quarter production averaged 172,000 barrels of oil equivalent per day, down from 202,000 barrels a year earlier.

It proposed a final dividend of 13 US cents, up from 12 cents a year earlier, in line with its $200 million annual dividend policy and representing around 9% growth year-on-year.

Harbour Energy Chief Executive Officer Linda Cook commented: ‘During the first quarter, we continued to deliver safe and responsible operations, maximise the value of our UK production base and advance our organic growth projects. At the same time, we made significant progress towards completion of the Wintershall Dea acquisition which will transform our portfolio and capital structure and support enhanced and sustainable shareholder returns.’

Among London’s small-caps, Avon Protection rose 4.2%.

The personal protection equipment company said it won a contract from the UK Ministry of Defence worth up to £38 million for the continued supply of general service respirator and associated in service support.

The contract runs for four years with five further 12-month option periods.

Brent oil was trading at $83.62 a barrel late on Thursday, higher than $83.48 late Wednesday. Gold was quoted at $2,332.88 an ounce, higher than $2,317.69 on Wednesday.

Friday’s economic calendar has a UK gross domestic product reading at 0700 BST.

The local corporate calendar has first-quarter results from British Airways parent International Consolidated Airlines Group.

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