Wall Street pushes higher and FTSE closes in green as central banks hold interest rates

• 

  The Bank of England (BoE) has left UK interest rates on hold at a 15-year high of 5.25% in its final meeting of the year.

  The monetary policy committee (MPC) voted by a majority of 6-3 to keep the bank rate steady for the third time in a row as it tries to bring inflation lower.

  Money markets are now predicting that Threadneedle Street will reduce interest rates by five quarter-point cuts next year, down from the current levels to 4%.

  They also predict that Threadneedle Street will begin reducing borrowing costs by May at the latest, having previously forecast it would start by June.

  Read the full story here

• That’s all from us but keep up with what’s happening across the pond via our US blog.

  Follow us tomorrow for more on interest rates, market moving stocks and the latest economic analysis.

  Thanks

  PHG

• US economic data shows consumer remains strong

  Economic data on Thursday showed the amount of layoffs in the US isn’t taking a material step higher while consumers continue to spend money. My colleague Josh Schafer writes:

  Retail sales grew 0.3% in November, according to Census Bureau data. Economists had expected a 0.1% decline.

  “The upside surprise in November retail sales is indicative of the continued staying power on the part of consumers,” Wells Fargo Economics senior economist Tim Quinlan wrote in a research note on Thursday.

  And that staying power comes as the labor market overall remains tight, with unemployment at a historically low level.

  New data Thursday showed weekly jobless claims came in lower than expected. In the week ending December 9, 202,000 jobless claims were filed, below economists expectations for 220,000, which would’ve been roughly in line with the week prior.

  “Still-low initial jobless claims suggest substantial and widespread layoffs are still not occurring,” Citi’s team of economists wrote in a research note on Thursday.

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  Apple (AAPL) – Apple’s stock reached a record high on Wednesday and was trending in after hours trading as Wall Street rallied on interest rate cut hopes.

  Adobe (ADBE) – Adobe shares slipped in extended trading after fiscal fourth-quarter results surpassed expectations, but guidance for fiscal 2024 trailed estimates.

  Pfizer (PFE) – Shares of Pfizer fell in after hours trading after the drugmaker forecast 2024 revenue and profit below Wall Street’s expectations.

  Currys (CURY.L) – Electricals retailer Currys has reported falling sales as it said consumer spending has been under pressure and the business sharpened its focus on improving profits.

  Read the full story here

• 

  The European Central Bank (ECB) has followed in the footsteps of the Bank of England (BoE) and the US Federal Reserve, keeping interest rates on hold at 4.0% for its final meeting of 2023.

  It comes after 10 consecutive hikes that began in July 2022, and as consumer prices in the eurozone only rose by 2.4% in the year to November. Core inflation also went down.

  As inflation has fallen faster than expected, investors have now increased their bets for ECB rate cuts in 2024, currently pricing in almost 150 basis points of rate cuts next year.

  “The risk is now earlier and larger cuts, and an ECB more capable of decoupling from the Fed,” said Mark Wall, an ECB watcher with Deutsche Bank (DB).

  Read the full story here

• 

  The pound rose after the Bank’s decision to hold interest rates at 5.25% and as policymakers signalled that cuts were not expected anytime soon.

  Sterling (GBPUSD=X) lifted 0.8% to 1.27 US dollars and was 0.3% higher at 1.16 euros.

• Sam Richardson, deputy editor of Which? Money, said that interest rates at a 15-year high of 5.25% are still causing pain for most UK households.

  “Today’s announcement that the base rate will stay at the current level won’t help households already struggling with their mortgage payments, or about to come off fixed rate deals.

  “Nearly half a million homeowners are coming off fixed term deals over the Christmas period, and are likely to see their monthly payments rocket, so banks must be ready to respond with tailored support. The regulator must monitor the situation closely to ensure firms are doing all they can, and take action against those that fall short.

  “While expectations of future base rate reductions have led banks to start cutting mortgage and savings account rates, savers shouldn’t put up with sub-par rates. We’d recommend shopping around to ensure you’re getting the best savings rates.”

• Three of the nine Bank of England policymakers voted to raise interest rates to 5.5% because they said household incomes have risen and inflationary pressures have remained elevated.

  Megan Greene, Jonathan Haskel and Catherine Mann preferred a 0.25 percentage point increase, at odds with the six members who voted to keep rates unchanged at 5.25%.

  The three believed that an interest rate rise was necessary “to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium-term”.

  However, the majority of the MPC felt that keeping rates at 5.25% was necessary because UK economic activity remains subdued.

• Alice Haine, personal finance analyst at Bestinvest, breaks down how the latest Bank of England decision will impact your finances.

  Mortgages – “Rate cuts would be hugely welcomed by borrowers, particularly those with heavy debts or oversized mortgages to repay. Mortgage rates have been easing steadily since hitting a peak in July, but this will soften the blow only marginally for the many mortgage holders yet to switch from cheaper fixed-rate products taken out before rate hikes began.”

  Credit cards and overdrafts – “Consumer borrowing costs on credit cards, loans, overdrafts and car finance have also skyrocketed over the past two years making it hard for households with heavy liabilities to stay on track. Turning to credit to fund living costs is far from ideal when the cost to service debt is so high, but that has become the reality for many households during the cost-of-living crisis. With Christmas now just days away, households may have little choice if they want to meet all the costs that come with the festive period forcing more people into the red as the New Year dawns.”

  Savings – “The winners for now in this still high interest rate environment are savers, with the average easy access savings rate rising to 3.18% from 0.2%* in December 2021 with the best deals still topping the 5% mark. Now is the time to act, however, if savers don’t want to miss out on the top rates before they disappear. While fixed-rate deals of 6% plus became a feature in the summer months, these offers have already disappeared and with rate cuts expected next year, savings rates are likely to ease further from here. Savers with money sitting idle in accounts offering dismal returns should nab a top fixed-rate deal while they still can.”

• 

  Governor of the Bank, Andrew Bailey, stressed that there is “still some way to go” in policymakers’ efforts to drag inflation down as the central bank said policy is likely to remain “restrictive for an extended period of time”.

  On Thursday, the Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the rate steady at its current level, which is a 15-year-high.

  Six members of the nine-strong committee were in favour of maintaining the rate at 5.25%, while three called for an increase to 5.5%.

  Bailey said: “We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10% in January to 4.6% in October, but there is still some way to go.

  “We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to 2%.”

• The Treasury has responded to the Bank of England’s decision to hold the base interest rate at 5.25%:

  “We have turned a corner in our fight against inflation and real wages are rising, but we must keep driving inflation out of the economy to reach our 2% target.

  “By cutting taxes for hard working people and businesses, and helping people into work, we are forecast to deliver the largest boost to potential GDP on record.”

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