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While you were sleeping: Carney signals stimulus

Friday 1st July 2016

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Stocks rose, while the British pound weakened, as Bank of England Governor Mark Carney signalled the central bank will likely ease monetary policy in the coming months to offset the impact of the UK’s decision to leave the European Union. 

“The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said. 

The pounds slid 1.5 percent against the US dollar.

“The comments clearly signal that the Bank of England has decided to loosen monetary policy to support growth,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London, told Bloomberg. “And it will look through a temporary period of higher inflation resulting from a sharp decline in the pound. BOE easing will reinforce the weakening trend for the pound.”

Stocks however climbed. Europe’s Stoxx 600 Index ended the session with a gain of 1 percent from the previous close. Germany’s DAX index rose 0.7 percent, France’s CAC 40 index increased 1 percent, while the UK’s FTSE 100 index rallied 2.3 percent.

“Central banks will flood the market throughout the summer with easy money to make sure no real big accident happens,” Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, Switzerland, told Bloomberg. “The expectation of easy monetary policy across the world is one of the things that works well for the stock market and most European companies aren’t affected that much by Brexit because they trade with China and the US mainly.”

Wall Street also took note. In 2.25pm New York trading, the Dow Jones Industrial Average added 1.3 percent, while the Nasdaq Composite Index gained 1.1 percent. In 2.09pm trading, the Standard & Poor’s 500 Index increased 1.1 percent.

US Treasuries declined, pushing yields on the 10-year note five basis points higher to 1.52 percent.

Advances in shares of General Electric and those of Intel, up 2.8 percent and 2.3 percent respectively recently, spearheaded the gains in the Dow. 

Shares of Visa dropped, last 3.3 percent weaker, for the only percentage drop in the Dow in afternoon trading, after a federal court rejected an anti-trust settlement. That opened the door to years of fresh litigation. Shares of MasterCard also slid, down 3.5 percent as of 2.46pm in New York.

Shares of Hershey rallied after the Wall Street Journal reported that Mondelez International made a US$23 billion bid for the chocolate maker that would create the world’s biggest candy company.

Shares of Hershey jumped, trading 15.2 percent higher at US$111.87 as of 12.27pm in New York. Shares of Mondelez also gained, trading 4.3 percent higher in New York.

Tigress Financial Partners analyst Philip Van Deusen told Reuters he expected the offer price to increase, given the rise in Hershey shares. "I think (US$107) is a good starting place," he said.

BusinessDesk.co.nz



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