Bank of England leaves UK interest rates at 0.1%; bond selloff continues – as it happened

And finally..... European stock markets have closed, with Germany’s DAX leading the way.

The FTSE 100 index ended 17 points higher at 6779. Financial stocks rallied, following the jump in bond yields, along with mining stocks, but property firms and energy companies dropped (thanks to the slump in oil today)

The DAX ended 1.3% higher, having hit a fresh record high earlier it the day.

David Madden, analyst at CMC Markets, says dovish central bankers gave the European markets some support (but not the Nasdaq, of course)

Last night, the Federal Reserve maintained its dovish stance and that triggered the bullish moves seen in European stocks today. Several hours ago the Bank of England kept their policy unchanged too, so that contributed to the positive move also.

Jerome Powell, the head of the Fed, announced the US economy is predicted to grow at a faster rate than initially thought in 2021 but at the same time, rates are likely to stay near zero through 2023 – this acted as a green light for the bulls. Mr Powell cautioned that higher inflation is on the cards but it should only be temporary and therefore not warrant higher interest rates.

Bond yields have increased today but it hasn’t spooked equity markets.

Goodnight! GW

Another day of rotation on Wall Street - with banks and manufacturers in demand, and tech stocks and oil companies out of favour:

18 Mar 202112.15 EDT

Mark Sweney

BT has committed to investing £12bn in faster broadband connections to 20m UK homes, including in remote rural areas, after agreeing return on investment incentives with Ofcom.

However, some rival operators warned that Ofcom’s broadband plan could mean price rises for consumers.....

Factories in Philadelphia have reported their strongest growth in 50 years, in another clear sign that the US economy is picking up.

The Federal Reserve Bank of Philadelphia’s latest survey of factories showed conditions in the region jumped to the highest level since 1973, with firms reporting a pick-up in orders and shipments.

Inflationary pressures rose too, with a measure of prices paid for materials soared to a 41-year high.

The oil price has taken a tumble today, with US crude down 4.2% at $61.85 per barrel and Brent crude 4% lower at $65.33.

That’s partly because the dollar is strengthening today, but also reflects worries about a third wave of Covid-19 hitting Europe’s economy, especially with the AstraZeneca vaccine rollouts suspended in some EU countries earlier this week.

A report yesterday showing a rose in crude inventories isn’t helping either, pulling oil down from the 14-month highs earlier this month.

Edward Moya of OANDA explains:

Crude prices are declining for a fifth consecutive day as concerns grow that Europe won’t have a regular summer. The crude demand outlook for the US appears to be the complete opposite for the eurozone. Europe is seeing a third straight week of rising of COVID cases and with vaccination hurdles remaining in place, the outlook does not seem it will be getting better anytime soon.

A strong dollar is emerging post-Fed decision as short-end rates appear anchored, while the long-end of the curve is free to rise. A strong dollar is accelerating the weakness in oil prices.

WTI crude could soften some more, but should start to see buyers emerge around the $60 level. Significant weakness from here seems unlikely since the short-term hit to demand outlook should be temporary and OPEC+ production could stay steady for another month.

18 Mar 202111.11 EDT

Julia Kollewe

UK coach and bus operator National Express is certainly keen for Covid-19 lockdowns to lift.

It slumped to a £445m loss for 2020 after coronavirus travel restrictions led to an 80% fall in passenger numbers last year.

José Ignacio Garat, the chief executive, struck an optimistic note this morning, noting that the final three months of 2020 had been the strongest of the year and revenues had improved slowly so far in 2021, as the UK and other countries started vaccinating against Covid-19.

Garat said:

“When travel restrictions have been lifted, we have seen a rapid recovery in demand.

Across the business we have reduced costs, exited certain contracts and accessed government support schemes, to ensure that when we emerge from the pandemic the group will be leaner, fitter and financially stronger.”

Here’s the Financial Times’s take on the Bank of England’s improved economic outlook, and relaxed comments on rising bond yields.

The Bank of England upgraded its outlook for the UK economy on Thursday, but stressed it was in no hurry to reduce its support to boost the recovery from the coronavirus crisis.

After the March Monetary Policy Committee meeting, the central bank said that financial market moves in the past six weeks, which have seen sterling and the cost of government borrowing rise, had been warranted by the better immediate prospects for recovery.

In the minutes of the meeting, the BoE followed the US Federal Reserve in not taking any action to return financial market interest rates to the levels in early February.

Bond markets took the BoE’s relaxed attitude as a reason to sell off again, further raising government borrowing costs. The yield on 10-year gilts rose more than 0.05 percentage points on the day to hit 0.9 per cent at lunchtime. At the time of the BoE’s February meeting, the equivalent gilt yield was 0.45 per cent.

Tech stocks are suffering from the bond selloff.

Over in New York, the Nasdaq has fallen by over 1.5% in the first hour of trading, shedding 213 points to 13,311 points. Video conferencing firm Zoom (-3.4%) and payment company PayPal (-3%) are among the fallers.

Rising bond yields weakens technology company share prices, as a higher inflation environment makes their future earnings less valuable today.

The S&P 500 index has dropped by 0.5%.

The Dow Jones Industrial Average, which has a greater concentration of ‘old economy’ stocks, has crept up by 0.2%, though. The jump in bond yields is helping financial stocks, with JPMorgan Chase up 3.8% and Goldman Sachs up 2.8%

But the Dow’s tech contingent are down, with Apple off 2.1%. Salesforce.com losing 1.9%, Microsoft off 1.8% and Intel losing 1.5%.

Back in the markets, the selloff in government bonds is continuing as investors continue to price in rising inflation.

The yield (or effective interest rate) on US 10-year Treasuries has jumped to 1.75% today, a 14-month high, as prices keep falling.

Other sovereign bonds are also weakening. The UK 10-year gilt yield touched 0.9% today, its highest level since the pandemic began.

Bloomberg explains that traders are anticipating that the Federal Reserve will allow inflation to overshoot amid an economic rebound.

The moves came after Fed Chair Jerome Powell indicated he wasn’t concerned over the recent surge in long-term yields -- with his focus still on whether financial conditions remained accommodative. Rates have surged this year on expectations that stimulus spending and vaccine rollouts will fuel a sharper economic recovery and a pickup in inflation.

“Powell has given the green light to higher 10- and 30-year yields as progress out of the pandemic accelerates,” said BMO Capital Markets’ Ian Lyngen. “Underlying inflation expectations remain elevated and will remain a bedrock of the bearish trend in Treasuries until those assumptions are challenged. For now, it doesn’t pay to fight the cheaper and steeper yield curve.”

Over in America, the number of people filing new jobless claims has jumped unexpectedly.

The weekly ‘initial jobless claims’ total rose to 770,000 last week (on a seasonally-adjusted basis), jolting economists who had expected a drop to 700,000.

That’s an increase of 45,000 on the previous week.

And if you include freelancers and self-employed workers who seek help through the Pandemic Unemployment scheme, there were more than a million new unemployment claims.

This weekly data can be volatile, especially as states recover from February’s bad weather.

But the big picture is that US unemployment claims have been running at historically high levels for a year, as Daniel Zhao of Glassdoor tweets: