London View

Spain Shows Promising Economic Growth, Sterling Falls After Unanimous BoE MPC Decision to Stick With Current Interest Rate and QE Levels

The S&P 500 rose yesterday after inflation data suggested that the Federal Reserve may not be raising interest rates any time soon and earnings reports boosted optimism about the strength of the economy. The S&P is currently up 0.11% at 1985.73.

Investors are also watching developments in Ukraine, where the Defence Ministry today said rebels in the eastern part of the country downed two military jets. The European Union yesterday threatened to restrict Russia’s access to capital markets and both sensitive energy and defence technologies unless President Vladimir Putin undertakes a probe into the downing of the Malaysia Airlines plane.

Closer to home, growth in Spain -- the Euro zone's fourth-largest economy -- picked up pace in the second quarter, according to the Bank of Spain. It reckons that Spain’s economy grew 0.5% Quarter-on-Quarter, compared with 0.4% growth recorded in Q1. The central bank said it now anticipates that Spain's economy will grow by 1.3% in 2014 and 2% in 2015, slightly above earlier projections of 1.2% and 1.7% respectively. That’s further welcome news for Spain as the country is now officially out of its two-year recession and has recently been one of the strongest-performing Euro-zone economies. In the UK, the pound erased gains after minutes from the Bank of England’s July meeting showed all members voted in favour of keeping monetary policy loose. The pound fell to $1.7050, from $1.7060 late Tuesday and from $1.7088 ahead of the BOE release, as well as slipping against the Euro, to €1.2662, down 0.1% from Tuesday. The BOE’s Monetary Policy Committee said all nine members were in favour of making no changes to its record-low interest rate and keeping its quantitative-easing program at £375 billion. As the UK economy shows signs of growth, expectations are increasing that the BOE will need to raise rates before the end of this year, but the central bank has so far been mixed in its forward guidance.

In earnings news, Microsoft shares gained 1.5% after the firm’s quarterly revenue figures beat estimates, whilst Boeing added 0.9% after raising its 2014 profit forecast.

Looking ahead, we have earnings out from Facebook after the US closing bell.