BoE votes to keep rates on hold

After an exciting week for the pound, which has seen it rally over 1%, the central focus – the BoE rate decision turned out to be a bit of a non- event. The 7- 2 vote split provoked little more than a knee jerk pop higher for sterling to $1.4216, before dropping lower on the day.

As expected the BoE voted to keep monetary policy unchanged in March, with rates on hold at 0.5%. 

The meeting minutes were marginally more hawkish in tone, as the Brexit transition deal agreed earlier in the week has helped reduce Brexit risk and put the outlook for the UK economy on a more stable footing. Furthermore, wages are moving in the right direction, so the wage story in the UK is also giving Mark Carney & co. more flexibility. 

There are several head winds which are disappearing. However, Brexit and possible trade wars remain clear risks for the BoE to navigate.

This meeting can certainty be interpreted as a step towards a hike in May. 

The pound ran out of steam having already had an exceptional week and having rallied hard into the announcement. Broad based dollar strength has also been a hindrance to the GBP/USD which is back below $1.41.

FTSE dives 1.6%

The FTSE fell steadily on the back of the stronger pound, then losses were exasperated as the US opened, pulling the UK index to a 15 month low and firmly below the key psychological level of 7000. Over in mainland Europe the Cac, the Dax and the Eurostoxx are all down by 2% heading into the close as trade concerns are spreading.

Wall Street Slides As $50 billion tariffs against China announced

A triple whammy of bad news has proved too much for Wall Street to handle, in a clear risk off day. A not so hawkish Fed, Trump ramping up trade war fears and the resignation of Trump’s lawyer John Dowd has proved to be a toxic combination sendng US indices heavily lower.

It unlikely that the markets are completely sure what the resignation of Trump’s lawyer means, however the natural conclusion is that something is amiss, which is enough to deepen the risk off sentiment. 

Trump’s announcement that he will place $50 billion of tariffs on China over IP theft has sent the markets spiraling lower. Fears that it could be harmful to the US economy and fears over the potential retaliation from China have left investors rotating out of stocks into less risky bonds.

Interestingly the dollar is holding up well despite the chaos in the markets around it. In previous sessions the dollar has been a good proxy for political risk and trade war fears, falling as risk increases. Today that relationship has been put on hold.

Facebook remains out of favour

The US tech sector continues to suffer in the wake of the Facebook data mismanagement scandal. Mark Zuckerberg has finally come out to apologise over the mishandling of data however, investors have been less than impressed with the response. 

Facebook is once again off a further 2.8%. It increasingly looks as if there will be a big regulatory clamp down and the realisation is that this clamp down won’t just be on Facebook, but on the entire tech sector.