THE UK banking sector will be knocked today by a worse than expected downgrade by Moody’s, which has reduced the ratings of 14 UK banks and building societies by up to three notches, to reflect the removal of implicit government support in the event of possible failure. The markets expected a two-notch deduction, and the more severe downgrade could leave banks facing higher borrowing costs at a time when conditions are already difficult.
THE BANK of England surprised the market yesterday with a resumption of its quantitative easing programme, saying it will pump £75bn of new money into the economy. Most analysts had anticipated the central bank to hold off for at least another month and thought that a lesser £50bn would be set aside. The Bank of England’s QE initiative has lain dormant since 2009, after it spent £200bn buying up assets such as government bonds from banks in an effort to lubricate the banking system in the UK. The Bank’s key lending rate was left at the historic low of 0.5%.
Asian stocks rose overnight, sending a regional benchmark index toward its biggest two-day gain in two years, as optimism European officials will protect banks from the region’s debt crisis boosted the earnings outlook for lenders and exporters. European shares are likely to rise for a third straight day today, mirroring gains on Wall Street and in Asia ahead of a crucial report on US jobs, with the ECB offer to help struggling banks improving sentiment.
European stocks raced higher in the final hours of trading for a second straight session on Thursday, as European officials continued to signal increased willingness to backstop the region’s banking sector. US stocks moved sharply higher over the course of the trading day, with markets extending the upward move seen in the two previous sessions, further recovering from the lows seen on Monday.
The EURO was set for its first five-day gain against the dollar in three weeks on prospects a capital backstop for European lenders will help stem the region’s debt crisis. Dollar losses were limited on speculation the number of jobs added last month in the US won’t be enough to curb unemployment, spurring demand for safer assets.
OIL surged yesterday after the European Central Bank President Jean-Claude Trichet announced a bond-purchase program to tame the region’s debt crisis, while the Bank of England unexpectedly expanded its bond-purchase program in the first loosening of UK monetary policy since 2009.
Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Copper slumped to a 14-month low on Monday as commodities slid on concern that demand may wane as economies slow. Many analysts now feel that prices were more negative than the risks to growth imply.