Market Update – 18th June 2020.

Data from the US yesterday (Wednesday 17 June 2020) showed that Americans were looking at renovating or moving to a bigger, better home as mortgage applications rose to their highest level since 2009.

This is very positive news:  not only does it suggest that Americans are confident about their job prospects, but it also means consumer spending will get a further boost (as they buy new furniture and electrical appliances, etc.), meaning that the impressive US retail sales data we talked about yesterday (please see here) should continue into the months ahead – and as the US consumer accounts for two-thirds of the US economy, it will obviously help the economy to quickly and strongly bounce back.

However, today is all about the BoE’s monetary policy meeting and the weekly US jobless claims data.

Everyone expected the BoE to increase stimulus given the current round of QE ends shortly, but given last week’s GDP data reading showed the UK economy contracted by 20.4% in April and yesterday’s CPI inflation reading was well below the BoE’s 2% target, speculation has increased over whether policymakers will take interest rates negative.

Consequently, news that policymakers voted unanimously to leave interest rates unchanged at 0.1% and only increase its QE program by £100bn was disappointing – especially as the QE program will stretch out to the end of this year (we expected it to run to their next meeting on Thursday 6 August 2020 and then increased further), coupled with their warning that there is a risk of higher and more persistent unemployment.  As a result, the FTSE-100, which was trading effectively unchanged before the 12 noon announcement, is now down around 50 points, or 0.80%.

We will hear more from the BoE Governor, Andrew Bailey, later today – and if he says anything interesting or relevant, we will discuss this in tomorrow’s commentary, along with the weekly US jobless claims data which is due this afternoon (we are expecting both the initial and continuing claims to decline as US states continue to lift lockdown restrictions and reopen their economies, allowing laid-off staff to be rehired).

Investment Management Team