Supported by six year high borrowing rates of 5.75 percent, the pound sterling appreciated against the greenback on stronger-than-expected manufacturing and industrial production data. Cable has retreated from its 26-year highs of 2.0207 over the past few days, and trades at 2.0117 in the New York afternoon.
Crude prices are mounting past $74/ barrel in London on supply concerns out of Nigeria. Helping oil stocks, energy firms are being upgraded by analysts as strong summer demand persists.
[I]-Source: Financial Times[/I]
Costs from floods in the UK are growing as last figures indicate that it could cost insurers 1.5 billion pounds to correct the damage done as many remain homeless.
[I]-Source: Reuters UK[/I]
Under attack by conservatives, newly appointed Prime Minister Brown defends the BoE?s hawkish stance on inflation and their swift action in correcting the above range readings.
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP
[/B]Supported by six year high borrowing rates of 5.75 percent, the pound sterling appreciated against the greenback on stronger-than-expected manufacturing and industrial production data. Cable has retreated from its 26-year highs of 2.0207 over the past few days, and trades at 2.0117 in the New York afternoon. Defying economists? forecasts of a 0.3 percent gain, industrial output gained 0.6 percent in May, its largest jump since the November release. Yield seeking investors have taken advantage of a higher interest rate environment in the UK, as the British pound is up 2.5 percent versus the US dollar and 6 percent against the Japanese yen this year. With an economy that is rapidly expanding, higher market rates are a legitimate possibility. Short sterling contracts have fully priced in one more hike to 6 percent and a 40 percent chance of a move to 6.25 percent by the end of the year.
[I][U]Equity Markets:[/U][/I] [B]FTSE 100
[/B]London?s leading equity index climbed 0.4 percent to 6,659.30 as mounting commodity prices spur sector shares. Deutsche Bank upgraded ratings on BP Plc (BP.L) and Royal Dutch Shell Plc (RDSa.L) to a “buy,” raising price targets on BP to 670p from 580p and Shell to 2375p from 1950p. Also amidst the backdrop of crude at 10-month highs and a waning supply picture, BP gained 0.8 percent to 609 and Shell added 1.7 percent closing at 2151. The world?s largest mining firm, BHP Billiton, contributed 2.1% percent to the FTSE 100 today as the firm attempts to meet the growing copper demand from China while maintaining 8.3 percent annual output growth.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-Year Long Gilt[/B]
With the robust British economy omitting no signs of easing its three year advancement, fixed-income traders continue to sell issues on speculation of further monetary tightening. 10-year gilts advanced 2bp during the session to 5.529 percent as the yield differential between gilts and long US debt begins to contract. Once demanding a 46bp premium to US treasury notes on July 4th, investors have seen a narrowed spread to 34bp after the strong US employment report.