What to Watch: Bank of England, Barclays results, Royal Dutch Shell miss

Edmund Heaphy
Finance and news reporter
Bank of England governor Mark Carney speaking earlier in July. Photo: AP Photo/Matt Dunham

Bank of England interest rates decision

The Bank of England (BoE) is set to leave interest rates unchanged on Thursday, but it will likely try and convince markets once again that, despite Brexit fears, it is still planning to introduce “limited and gradual” increases in interest rates.

The BoE will on Thursday publish the minutes of its latest Monetary Policy Committee (MPC) meeting alongside the committee’s decision on interest rates. Analysts think the MPC will vote unanimously to keep the bank’s benchmark bank borrowing rate unchanged at 0.75%.

“No change is expected this week given the weakness seen in the economic data for April and May, which is likely to make the banks forecasts even more downbeat that they were in May,” said Michael Hewson, chief market analyst at CMC Markets UK.

Though members of the MPC have increasingly signalled that it would actually cut interest rates in the event of a no-deal Brexit, the bank has thus far operated on the assumption that the UK will leave the European Union without a deal.

Outgoing governor Mark Carney has also indicated relatively staunch opposition to the notion of rate cuts.

“We have pushed back our expectation of the first hike from November this year to May 2020 and now see the bank raising rates once per year thereafter,” said Jordan Rochester, an analyst at Nomura, noting that this was “all dependent on a positive Brexit deal.”

Barclays profits fall 16%

Barclays (BARC.L) on Thursday said that pre-tax profits fell by more than 16% in the three months to the end of June, to £1.58bn.

The figure, down from £1.9bn a year ago, was the result of what the bank described as a “challenging” revenue environment in the first half of the year.

The bank is currently engaged in a cost-cutting drive in order to meet its profitability targets.

It said that its annual costs for 2019 would now come in below £13.6bn, when it had previously suggested they could be as high as £13.9bn.

The bank increased its dividend payment by 20%, to 3p per share, in a move that will increase confidence that the bank believes it can reach its targets.

The decision is also reflective of stellar performance at Barclays’ trading division, where revenue from fixed income trading was 25% higher than it was in the same period a year ago.

This helped offset a 14% decline in equities trading revenue, meaning that the bank’s markets section posted a revenue jump of 8% in the second quarter, far higher than its US rivals.

Profits at Royal Dutch Shell miss expectations

Anglo-Dutch oil giant Royal Dutch Shell (RDSB.L) on Thursday reported that its key measure of profits, known as earnings on a current cost of supply basis, fell 26% to $3.5bn (£2.9bn) in the three months to the end of June, well below market expectations of $4.9bn.

While profits at its integrated gas business fell by 25%, there was also a drop-off in its refining and chemicals divisions and its exploration and production section.

CEO Ben van Beurden said Shell had “delivered good cash flow performance, despite earnings volatility, in a quarter that has seen challenging macroeconomic conditions in refining and chemicals as well as lower gas prices.”

Shares in the company fell by more than 4% on Thursday.

Though profits at rival BP came in ahead of expectations earlier in the week, the results from Royal Dutch Shell follow a series of misses at its European competitors, including Italian giant Eni (ENI.MI) and Norway’s Equinor (EQNR).

£434m will be spent on UK medicine stockpiling

The UK government will spend £433m on stockpiling and new freight deals in a bid to stop Britain running out of vital medicines after a potential no-deal Brexit.

The huge sum is part of a £2.1bn ($2.6bn) pot for no-deal planning announced by new UK chancellor Sajid Javid, in his first major spending pledge since taking office.

The opposition Labour party called the funds an “appalling waste” of taxpayers’ money that could be spent on cash-strapped public services, urging the government to rule out a no-deal Brexit.

The escalation of no-deal planning and limited efforts to secure a breakthrough in negotiations with Brussels under new prime minister Boris Johnson have increased expectations of a radical rupture from the EU on 31 October.

European stocks mixed

European stocks got off to a mixed start on Thursday following disappointment with the US Federal Reserve’s Wednesday indication that its rate cut did not signal the beginning of an easing cycle. The FTSE 100 (^FTSE) fell by 0.17%, while Germany’s DAX (^GDAXI) was down by 0.03%. France’s CAC 40 (^FCHI) was up by 0.32%.

This followed a similarly mixed trading session in Asia. The Nikkei 225 (^N225) is up 0.09%, and the SSE Composite (000001.SS) was down by 0.81%. The Hang Seng (^HSI) was down by 0.71%.

Sterling continued its declines on Thursday, and was down 0.34% against the dollar (GBPUSD=X) on Monday, to around $1.21, and up only 0.03% against the euro (GBPEUR=X), to around €1.097.

What to expect in the US

Futures are pointing to a higher opening for US stocks.

S&P 500 futures (ES=F) are up by 0.02% and Dow Jones Industrial Average futures (YM=F) are down by 0.03%. Nasdaq futures (NQ=F) are up by 0.04%.

Companies reporting later on Thursday in the US include: