Amidst the backdrop of a weak dollar story and hawkish BoE rhetoric, the pound continues to rip higher, scaling previous key resistance levels to print a fresh 26-year high of $2.0363.
[I][B]“FTSE Fall Mirrors Wall Street?s Decline”[/B][/I]
In the overnight, Wall Street shares declined rapidly amidst selling on further negative news over the subprime mortgage market.
[I]-Source: Financial Times[/I]
[I][B]“Suicide Bombers Sentenced”[/B][/I]
Four men were jailed for 40 years each for attempting to carry out suicide bombings on London’s transport system, a plot said to be part of an al Qaeda planned series of attacks on the capital
[I]-Source: Reuters UK[/I]
[B][I]“UK Plans Include Using Covered Bonds to Spur Long-Term Mortgages”[/I][/B]
Prime Minister Gordon Brown said the government will study making use of covered bonds to encourage mortgage lenders to offer more 25-year fixed-rate loans, part of his legislative program for the next year.
[B][U]UK Market Activity:[/U][/B]
[I][U]Currency Markets:[/U][/I] [B]GBP[/B]
Amidst the backdrop of a weak dollar story and hawkish BoE rhetoric, the pound continues to rip higher, scaling previous key resistance levels to print a fresh 26-year high of $2.0363. Cable was buoyed by overnight comments made from BoE policy maker Andrew Sentence, who stated “we’re keen to see that this temporary increase in inflation doesn’t become too embedded.” The BoE lifted its key lending rate last week to 5.75 percent, making it the central bank’s fifth attempt this year to quell inflation which persists above the two percent target for the year. Trading shy of its highs in the Wall Street afternoon, the high yielding sterling continues to take advantage of the greenback’s susceptibility to negative subprime sentiment and carry trade flows as futures trading conveys a further quarter-point increase to 6 percent by year-end.
[I][U]Equity Markets:[/U][/I] [B]FTSE 100[/B]
British blue-chip equities tracked global markets, trading sharply lower by -0.7 percent to 6583.60 in the midday New York session. Goldman Sachs & Co. countered $73 crude, downgrading FTSE 100 oil sector shares as supply doubts reach full focus. Once donning a “neutral” rating, guidance in Royal Dutch Sell was revised downward to “sell” as analysts cite concerns over capital intensive investment restricting cash-flow and production growth. Shares in Europe?s largest oil company sank 1.7 percent on the news before reaching the bell at 2056p. British Airways also fell under the weight of expensive fuel costs emerging as an index laggard as seasoned issues were sold-off to the tune of 1.8percent, ending the session at 607p.
[I][U]Fixed-Income Markets:[/U][/I] [B]10-Year Long Gilt[/B]
Long dated government debt has long been the penchant of risk-averse investors seeking to shelter resources in turbulent financial environments. This very notion can be illustrated in present global fixed-income markets, as participants sell-off risky equity positions and roll over funds into long maturity government bonds. As concerns over credit ratings sent shockwaves through the markets, yields on the 10-year UK gilt nearly scrapped its four week low of 5.39, slipping 3bps to 5.411 percent. Debt traders express that current market conditions show yield spreads become increasingly stretched amidst scattered market volatility and global monetary firming.