By Nina Bains
Sterling rose to a fresh high for the day against the dollar Thursday after the Bank of England left policy unchanged
and opted not to issue a statement, while the euro and German Bunds were stable as investors awaited further clues on
future policy moves at the European Central Bank.
The European Central Bank left its key interest rates unchanged again, as expected, adding more importance to the
press conference that follows.
“While the ECB’s decision to leave interest rates unchanged was fully anticipated, the press conference could offer
more interesting hints about a near-term rate cut and measures to improve the Bank’s transparency,” said Jennifer
McKeown, senior European economist at Capital Economics.
“After pledging last month to keep rates low for an extended period, there will be pressure for the Bank to provide
more explicit forward guidance.”
Earlier, the Bank of England left its benchmark interest rate and bond-buying program unchanged and opted not to
issue a statement, despite having taken the unusual step to do so after the July meeting. In a policy review Wednesday,
the central bank is expected to be more explicit about the conditions under which policy would be tightened, in a
process known as forward guidance.
U.K. stocks briefly turned negative, government bonds slipped but sterling rallied against the dollar following the
announcement.
By midday in Europe, the U.K.’sFTSE 100 was up 0.1%, Germany’s DAX rose 1.2% and France’s CAC-40 advanced 0.5%.
More generally in Europe, gains were underpinned by strength in the mining sector after manufacturing data from the
euro zone and China beat expectations.
China’s official manufacturing purchasing managers’ index rose to 50.3 for July from 50.1 the previous month,
surpassing the 49.8 economists had forecast.
In addition, the HSBC index, which covers a wider range of smaller companies, came in at 47.7 for July, unchanged from
the preliminary estimate.
Hong Kong’s Hang Seng Index rose 0.9% and China’s Shanghai Composite rallied added 1.8%. While in Europe, the Stoxx
600 basic resources soared 2%.
Meanwhile, the euro zone’s manufacturing sector grew in July for the first time in two years.
The euro zone manufacturing purchasing managers’ index rose to 50.3 in July from 48.8 in June, higher than an earlier
estimate of 50.1.
U.K. manufacturing data were equally upbeat and also helped the sterling higher, as the manufacturing sector expanded
at the fastest pace in over two years.
The monthly purchasing managers’ index rose to 54.6 in July, the highest level since March 2011 and exceeding
economists’ expectations.
U.S. stock futures rose in tandem with European stocks, pointing to a firm start on Wall Street.
Late Wednesday the Fed said that the U.S. economy has expanded “at a modest pace,” during the first half of the year
while also expressing concern about low inflation and higher mortgage rates.
“The market took a dovish interpretation of the FOMC statement, focusing on the disinflationary dialogue,” said Sue
Trinh, senior currency strategist at RBC Capital Markets, referring to Wednesday’s meeting of the Federal Reserve Open
Market Committee.
Corporate news in Europe was mixed but banks had a strong showing.
Societe Generale SA shares rallied as second-quarter net profit more than doubled from a year ago, helped by its
international retail business and stronger investment-banking revenue.
Lloyds Banking Group PLC shares soared after the bank posted strong first-half profits and reported it is making
faster-than-expected progress on shoring up capital.
Shares in Royal Bank of Scotland rose as the bank was said to be eyeing Ross McEwan, the head of its retail bank, to
replace Stephen Hester as chief executive, according to people familiar with the matter.
Shares in BAE Systems PLC gained after the company reported strong growth in big-ticket orders and after delivering
guidance on double-digit growth for the full year.
On the downside, shares in Royal Dutch Shell PLC slumped after the oil and gas giant posted a 60% fall in profit for
the second quarter.
Sanofi shares were also under pressure after the French drug maker reported weaker second-quarter earnings and lowered
its earnings guidance for 2013.
Write to Nina Bains at nina.bains@dowjones.com
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