Daily Market Color

Markets React to Bank of England Announcement with Payrolls on Deck

US stocks are trading close to unchanged while Treasurys are rallying across the curve after the Bank of England announced additional stimulus measures ahead of tomorrow’s all-important nonfarm payrolls release.  The BoE unanimously voted to cut rates for the first time in seven years, lowering its benchmark rate from 0.50% to 0.25%, a record low.  The British central bank also announced plans to buy 60 billion pounds of government bonds, 10 billion pounds of high-grade corporate debt, and a Term Funding Scheme intended to ensure banks pass on the rate cut to borrowers.  In the accompanying press conference, BoE Governor Carney said there is still room for additional stimulus in the form of rate cuts and QE, but ruled out negative rates and “helicopter money” for the time being.  The BoE downgraded its growth outlook for 2017 and 2018 as the UK deals with the repercussions of Brexit.
In terms of new data, the weekly jobless claims report showed the number of Americans filing for unemployment benefits rose slightly from 266K last week to 269K (265K expected), but remained below the 300,000 threshold – below which it is deemed to be a healthy labor market.  This marks the 74th consecutive week that claims have been below 300,000, the longest streak since 1973.  Other labor data showed that announced layoffs increased in July off the back of renewed job cuts in the energy sector.  Year to date, layoffs are down 8.7% compared with the same period last year.  A separate report showed factory orders decreased for a second straight month, but there were signs that spending cuts in the energy sector were easing. 

All three major US stock indexes are within 0.10% of yesterday’s close, while Treasury yields and swap rates are 2-5 bps lower across all major maturities.  Oil rallied for the second consecutive day, with WTI and Brent crude both up close to 2.5%.

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