GLOBAL MARKETS-Stocks halt rally, BoE jolts UK markets

Wed Aug 20, 2014 5:06am EDT

* Stocks rally pauses, BoE minutes jolt investors
    * Euro lowest in almost a year, falls below $1.33
    * Attention shifts from Ukraine-Russia conflict

    By Jamie McGeever
    LONDON, Aug 20 (Reuters) - World stocks mostly halted their
recent rally on Wednesday before the latest policy signal from
the U.S. central bank, while UK stocks and bonds fell after Bank
of England minutes showed two rate-setters voted to raise
interest rates earlier this month.
    Sterling jumped after the BoE minutes showed two of the nine
policymakers unexpectedly voted to raise rates, while record-low
money-market rates in the euro zone took the euro to its weakest
against the dollar in almost a year.
    Stocks had risen this week after strong U.S. housing data
and lower-than-expected UK inflation figures, which suggested
economic activity was rising but not fast enough to force
interest rates higher any time soon. The BoE minutes prompted
some to reassess, though. 
    "The voting has surely caught the market by surprise, given
that the (latest) inflation number was so low, but now we know
that we have two hawkish members in the committee," said Naem
Aslam, chief market analyst at Avatrade. "This has lowered the
bar for an increase in interest rates this year." 
    Later in the day, minutes from the last Federal Reserve
policy meeting will be released. On Friday, Fed Chair Janet
Yellen will address an annual gathering of policymakers in
Jackson Hole, Wyoming, on Friday.
    Riskier assets had been underpinned by a shift in attention
away from the Ukraine-Russia conflict, but investors used the
relatively calm economic and political backdrop to take some
money out of the market. 
    The MSCI index of world stocks slipped 0.1
percent to 428 points, the major European bourses fell by up to
0.2 percent and U.S. futures pointed to losses of around 0.2
percent at the open.
    Britain's FTSE was down a third of one percent at
6760 points, Germany's DAX was off a similar amount at
9300 points and France's CAX was down 0.4 percent at
4236 points. 
    Shares in Denmark's Carlsberg sank almost 6
percent after the company said deteriorating conditions in
Russia would hit overall profit this year. Dutch
brewer Heineken jumped 6 percent after first-half
profit rose.
    Earlier in Asia, the MSCI's broadest index of Asia-Pacific
shares outside Japan inched up 0.1 percent,
while Tokyo's Nikkei ended the day flat.
    Japan reported a wider-than-expected trade deficit in July
of 964 billion yen, pushing the dollar as high as 103.26 yen
, its highest since early April.
    Sterling rose 0.25 percent to $1.6650, rebounding
from a five-month low earlier this week around $1.66, and    
Britain's 10-year gilt yield rose 3 basis points to 2.43 percent
.
    The euro remained under pressure, in part from the decline
of overnight interbank lending rates in the euro zone, which are
coming ever closer to zero. Eonia rates are now just 0.005
percent.
    The euro fell below $1.33 for the first time in 11
months after German producer prices fell more than expected in
July, fuelling concerns that deflationary forces are spreading
to the core of the 18-nation bloc. 
    "This is a combination of expectations of very low rates for
a very long period of time, but also a reflection that the
market has raised the odds of the European Central Bank being
drawn into taking more serious action," said Elwin de Groot, a
senior market economist at Rabobank in Utrecht, The Netherlands.
    Key U.S. and euro zone government bond yields were little
changed. The 10-year German government bond yield hovered just
below 1 percent, the 2-year German yield was down
slightly before an auction later in the day and the
benchmark 10-year U.S. yield was flat at 2.40 percent.
    The 10-year Treasury yield had risen for the last three
days, rebounding from a 14-month low of 2.30 percent last week.
    In commodities, gold was stuck below $1,300 an ounce 
after shedding 1.3 percent in the last three sessions.
    Brent crude futures recovered from near 14-month lows,
ticking up a quarter of one percent to $101.80 a barrel,
although ample supplies are putting prices at risk of renewed
losses.     

 (Reporting by Jamie McGeever, additional reporting by Marius
Zaharia; Editing by Larry King; To read Reuters Global Investing
Blog click here; for the
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