Currently boasting the highest yields in the G7, the pound seems poised to break the 2.00 barrier on the back of swelling rate speculation. Up 1 percent versus the euro this week, the cable printed its highest level against the monetary union basket in nearly four months.
Updated analysis on the BoE June 6-7 Monetary Policy Committee meeting minutes illuminating Governor Mervyn King?s overruling 5-4 failing to make his case for higher interest rates.
- [I]“King, Outvoted by BOE Panel, May Be Vindicated Again”[/I]
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Officials have reported that the Bush administration has proposed that Tony Blair become an international envoy to the Middle East after he steps down as UK prime minister next week.
- “[I]US floats role in Mideast for Blair”[/I]
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-Source: Financial Times
International market consolidation continues as the London Stock Exchange submitted share-based bid to Borsa Italiana a share-based takeover offer worth approximately 1.5 billion euros.
- [I]“LSE board submits Borsa bid”
[/I]Borsa Italiana mulls LSE offer | Reuters
-Source: Reuters UK
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP/USD[/B]
Currently boasting the highest yields in the G7, the pound seems poised to break the 2.00 barrier on the back of swelling rate speculation. Up 1 percent versus the euro this week, the cable printed its highest level against the monetary union basket in nearly four months. Citing the ever-present carry trade, the sterling hit a fresh 15-year high versus the notoriously low-yielding yen, at 246.61. Easing against the dollar however, the British currency slipped to 1.9927 from yesterday?s figure of 1.9931. Several noted economists are using MPC votes from the BoE minutes released yesterday as a proxy for a forward revision of their interest rate time-horizon. Governor King who displayed a tightening bias was outvoted 5-4 in favor of an unchanged rate, but a quarter point hike in the July meeting to 5.75 might be the remedy Europe?s second largest economy needs to bring inflation back to target.
Daily Chart: [B]GBP/USD[/B]
[I][U]Equity Markets:[/U][/I] [B]FTSE 100[/B]
London share prices experienced a decline as the FTSE 100 index slid 1 percent reaching the bell at 6,582.70. Following other lagging European markets, the benchmark index fell under the concern of borrowing costs and government debt yields. Noted laggards included Segro Plc and Land Securities who retreated 4.2 and 4.1 percent respectively. Both firms compete in the investment-property space; Land Securities is the world?s second-largest REIT making them exceedingly vulnerable in an uncertain rate environment. Conversely; many analysts contend that the higher cost of funds will not adversely affect equity prices referring to the flow of capital out of fixed-income and cash investments into higher yielding opportunities such as private equity and hedge funds.
Daily Chart: [B]FTSE 100[/B]
[I][U]Fixed-Income Markets: [/U][/I][B]10-year Gilt[/B]
Yields on government debt issues have been intimately monitored by market participants in recent months as prices continue to fall across the board (as bond prices move inversely to yields). The yields on the prominent 10-year U.K. gilt climbed to a 9-year high on Thursday of 5.51 percent as fixed-income investors prepare for a BoE interest rate increase following the July MPC meeting. The gilt followed other government issues with comparable maturities as yields on the 10-year JGB rose 3.5 basis points to 1.925 and US Treasuries hitting 5.14 percent. The up-tick in bond yields have reignited interest rate fears as the fluctuations in the debt market have reverberated through global financial markets which have experienced a period of profit-taking, selling-off from recent highs.
Daily Chart: [B]10-year Gilt[/B]