Pound sterling scaled 26-year highs yesterday, breaching 2.0180 and then extending its gains to print a fresh plateau of 2.0197 against the greenback. As the market awaits the BoE rate decision on Thursday, participants have been busy pricing-in another rate hike to 6.00 percent this year.
[U]UK Headlines:[/U]
A list of the eight suspects connected to the recent attempted car bombing was released. More information regarding the incident is expected to surface as the United Kingdom frets further terrorist acts.
http://www.ft.com/cms/s/4c2201b8-2958-11dc-a530-000b5df10621.html
[I]-Source: Financial Times[/I]
UK equities advance as M&A activity and signs of solid economic growth help investors brush off recent fears over rising interest rates.
http://investing.reuters.co.uk/news/articleinvesting.aspx?type=eurMktRpt&storyID=2007-07-03T105626Z_01_L03379230_RTRIDST_0_MARKETS-EUROPE-STOCKS-UPDATE-2.XML[I]-Source: Reuters UK
[/I]London metals help the FTSE advance, but are the gains in copper unfounded? Copper futures in New York show signs of weakening as traders unwind contracts fearing a top in the precious metal.
Bloomberg - Are you a robot?
[I]-Source: Bloomberg[/I]
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP[/B]
Pound sterling scaled 26-year highs yesterday, breaching 2.0180 and then extending its gains to print a fresh plateau of 2.0197 against the greenback. As the market awaits the BoE rate decision on Thursday, participants have been busy pricing-in another rate hike to 6.00 percent this year. The implied yield on the December interest-rate futures contract of 6.24 percent has increased from 6.17 percent at the start of the month, conveying that investors are increasing wagers of further tightening. Appreciating 0.9 percent this week verses the US dollar; Cable is closing on 15-year highs of 247.91 against the low-yielding yen as carry-trader?s desire for yield continues.
[I][U]Equity Markets:[/U][/I] [B]FTSE 100[/B]
Ticking up 0.5 percent, Britain?s leading equity index brushed off the shadow cast by higher borrowing rates, ending the trading session higher at 6,624.60. The FTSE 100 Index applauded news of accelerated manufacturing data from the US as manufacturing components such as Rolls-Royce (RR.L) and BAE Systems (BA/LN) advanced 3.6 percent (554.5) and 1.7 percent (408.75) respectively. Also lending support to London?s favored stocks were metals prices, which spurred a rally in Anglo American (AAL/LN) and Xstrata Plc (XTA/LN). The world?s second and fourth largest mining firms made gains of 2.0 and 2.2 percent, respectively, off the back of mounting copper demand as contracts for three-month delivery traded as high as $7,805/metric ton on the London Metal Exchange.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-Year Long Gilt[/B]
Global bond prices strengthened across the board as 10-year gilt yields eased 2bp to 5.43 percent. Experiencing a recent lift from risk-averse investment inflows, long UK government debt yields seem poised to rebound as investors ponder the ramifications of higher interest rates. Currency traders closely monitor the spread between bonds with equivalent maturities as the movement in the disparity between the issues can be indicative of currency strength. Yields on the 10-year Gilt currently demand a 41bp premium to that of comparable US Treasury notes. When compared to 8bp at the start of the year, this expanding spread can be directly reflected in the pounds ascent above 26-year highs against the greenback.
