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Blue-chip stocks in the U.K. edged higher Thursday, sticking close to a more than three-month high, with Royal Bank of Scotland PLC shares climbing as the lender settled a U.S. legal complaint over risky loans.
Stocks edged higher before Thursday’s key event: the Bank of England’s policy decision and updates on its outlooks for inflation and economic growth.
How markets are moving
The FTSE 100 index was up 0.2% to 7,673.02, with the consumer services group rising the most, while the telecom and utility groups lost the most. The benchmark on Wednesday jumped 1.3% and closed at its highest level since Jan. 29, according to FactSet data.
The pound rose to $1.3551 from $1.3547 late Wednesday in New York, as traders looked head to the Bank of England. Against the euro, sterling bought €1.1427 versus €1.1430 in the prior session.
What’s driving markets
Ahead of the Bank of England’s “Super Thursday”, investors waded through company-specific updates, including Royal Bank of Scotland’s nearly $5 billion settlement with the U.S. Department of Justice over risky loans in the run-up to the financial crisis. RBS shares bulked up 4.8%.
“It’s a happy day for RBS, with the DOJ settlement coming in well below what we had feared. Of the $4.9 billion fine, around $3.5 billion has already been provided for, so the impact on future earnings appears to be at the very low end of expectations,” said Neil Wilson, chief market analyst at Markets.com, in a note.
“This removes the last great barrier to the government selling off its stake and we would envisage that the [U.K.’s Chancellor of the Exchequer Philip Hammond] will expedite the disposal of its 71% shareholding,” said Wilson.
For the Bank of England, investors are seeing only a chance of around 10% that policy makers will raise its key interest rate on Thursday. Expectations for a May move have fallen after a string of disappointing economic data underscored by weak first-quarter growth in British gross domestic product.
So investors will gauge what the next move might be for Gov. Mark Carney and his colleagues when they release their quarterly inflation report, rate decision and meeting minutes on this so-called “Super Thursday”. The policy decision and the outlooks will be released at 12 p.m. London time, or 7 a.m. Eastern Time. Carney’s news conference starts at 12:30 p.m. London time.
Readings on U.K. industrial production and trade for March are due at 9:30 a.m. London time.
What are strategists saying?
In terms of the Bank of England, “[m]arket participants will try to gauge how likely such a bullish tilt in the future seems at this point and the best way to do that is by monitoring how the Monetary Policy Committee members will vote,” said Konstantinos Anthis, head of research at ADS Securities, in a note.
“A split decision where the majority votes for no changes in policy but a couple — or a few — members vote for an immediate hike would signal that there is still a bullish undertone within the Bank of England. Should this be the case, the severely weakened pound will have the opportunity to rally above $1.36 with the next level coming in focus being the $1.3720 March lows,” wrote Anthis.
Stock movers
BT Group PLC slid 8.1% after the telecommunications company cut its forecast for fiscal 2019 adjusted earnings and revenue. BT also said it’s cutting 13,000 jobs over the next three years as it steps up its restructuring efforts.
Next PLC shares surged 6.7%, topping the FTSE 100, after the apparel and housewares retailer raised its full-year pretax profit guidance to £717 million ($971.5 million).
Randgold Resources Ltd. shares tumbled 8.1% as the gold miner said its first-quarter pretax profit fell 27% because of lower gold sales and higher production costs.