Stocks extend declines as investors await BoE rate rise

Receive free Markets updates

We’ll send you a myFT Daily Digest email rounding up the latest Markets news every morning.

Stocks continued to slide on Thursday following Wall Street’s biggest one-day drop since April, as investors prepared for the latest rise in interest rates from the Bank of England.

The Stoxx Europe 600 was down 0.6 per cent in early trade, on course for a third successive session of declines. The index has lost nearly 3 per cent so far this week as investors respond to some weak corporate earnings and economic data. France’s Cac 40 was 0.6 per cent lower on Thursday and Germany’s Dax gave up 0.8 per cent. 

London’s FTSE 100 was down 0.7 per cent ahead of the BoE’s monetary policy meeting later in the day.

The losses follow Wednesday’s global sell-off, which dragged the S&P 500 1.4 per cent lower, after Fitch’s surprise downgrade of the US sovereign credit rating and the announcement of an increase in Treasury issuance which pushed up global bond yields.

The risk-off sentiment lingered in Asia overnight, with Hong Kong’s Hang Seng index down 0.3 per cent, while South Korea’s Kospi lost 0.4 per cent and Japan’s Topix dropped 1.5 per cent.

China’s benchmark CSI 300 was the only outlier in the region, adding 0.9 per cent after fresh data showed that the country’s services activity expanded faster than expected in July. The Caixin services purchasing managers’ index rose to 54.1, well above the 52.4 forecast.

In the UK, yields on the policy-sensitive two-year gilt rose 0.02 percentage points to 5.01 per cent, as investors expected the central bank to take interest rates higher. Yields on the benchmark 10-year gilts added 0.05 percentage points to 4.45 per cent. Yields move inversely to prices.

The majority of the market bet that the benchmark bank rate will rise by 0.25 percentage points to 5.25 per cent on Thursday, but investors remain cautious after the central bank surprised them with a larger half-point increase at its previous meeting in June. 

“[Inflation] is still far from the BoE’s objective and so a 50 bps move can’t be totally ruled out”, said Julien Lafargue, chief market strategist for Barclays Private Bank.

While UK inflation has edged lower than expected in recent months, the country has struggled to catch up with its peers in the US and the eurozone, prompting investors to think the BoE will extend its tightening campaign for longer. 

Meanwhile, futures contracts tracking Wall Street’s benchmark S&P 500 slipped 0.3 per cent, while those tracking the tech-focused Nasdaq 100 fell 0.6 per cent ahead of the New York open. 

Attention turned to Wall Street’s high-flying tech sector, as heavyweight players Apple and Amazon were due to report second-quarter earnings after the closing bell.