The BoE offered a clear indication on Thursday that it was preparing to deliver another round of monetary stimulus to offset any economic fallout that may be caused by uncertainty in the wake of the UK’s vote last week to leave the EU.
Meanwhile, the pressure on the Bank of Japan to shore up its economy grew this morning following the release of data showing the economy fell deeper into deflationary territory and a soft reading on business conditions from the nation’s largest companies.
The British pound was sitting 0.1 per cent stronger on Friday at $1.3327, but had fallen 0.9 per cent on Thursday as the BoE flagged more stimulus. That also pushed the yield on the benchmark UK government 10-year bond (which moves inversely to price) to a record low of 0.861 per cent on Thursday, but helped the FTSE 100 rally for a third consecutive day, as it rose 2.3 per cent.
A week on from the volatility associated with last Friday’s Brexit vote, sterling has shed 10.3 per cent. UK blue-chips are now 2.6 per cent higher than last Thursday’s close but the more domestically focused FTSE 250 is down 6.1 per cent.
Around Asia, Japan’s broad Topix and the Nikkei 225 were both 0.8 per cent higher, while the yen was sitting 0.3 per cent stronger at ¥102.87 per dollar.
Australia’s S&P/ASX 200 was up 0.6 per cent on Friday, after ending its June 30 financial year with its first annual loss since 2011-2012. On the Chinese mainland, the Shanghai Composite was up 0.2 per cent and the smaller Shenzhen Composite was flat. The Hong Kong market was closed for a public holiday.
Data released on Friday showed that May headline consumer prices in Japan contracted 0.4 per cent year-on-year, a third consecutive month of deflation. Core CPI, a measure that strips out fresh food prices and which the BoJ is trying to push towards its 2 per cent target, declined 0.3 per cent year-on-year.
“While the labour market remains tight, consumer spending probably slowed last quarter. With underlying inflation now clearly weakening, we retain our view that the Bank of Japan will announce more stimulus later this month,” said Marcel Thieliant at Capital Economics.
Brexit presents a new risk to China’s external demand and challenges China’s manufacturing sector in the second half of 2016. We believe that the government will stimulate the economy by hastening infrastructure investment and urbanisation. The PBoC may also cut interest rates or the reserve requirement ratio to boost business confidence,” ANZ said.
Gold, which is sensitive to monetary policy expectations, was up 0.6 per cent at $1,330.13 an ounce, and on track for its third straight gain. The dollar index, a measure of the US currency against a basket of global peers, was down 0.2 per cent at 95.942.
Oil prices were firmer on Friday, with Brent crude, the international benchmark, up 0.6 per cent at $50.02 a barrel. West Texas Intermediate was up 0.5 per cent at $48.59.