London, Frankfurt stocks hit record highs on rate-cut hopes

Bank of England Governor Andrew Bailey expressed optimism about the improving inflation outlook, raising hopes for an interest rate cut (Yui Mok)
Bank of England Governor Andrew Bailey expressed optimism about the improving inflation outlook, raising hopes for an interest rate cut (Yui Mok)

The London and Frankfurt stock exchanges hit record highs Thursday as the Bank of England kept its interest rate at a 16-year high but raised hopes of a cut in the coming months.

Meanwhile, Wall Street rose following data showing a climb in claims for unemployment benefits that could raise the prospect of a US rate cut.

The British capital's benchmark FTSE 100 index, which has been breaking records repeatedly in recent days, extended the rally, rising 0.3 percent.

The DAX in Frankfurt came just shy of striking 18,700 points. The Paris CAC 40 also rose after falling earlier in the day.

The Bank of England kept its key rate at 5.25 percent for a sixth meeting in a row in efforts to tame inflation, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.

UK annual inflation fell less than expected in March to 3.2 percent but BoE Governor Andrew Bailey voiced optimism that it would soon return to the central bank's two-percent target.

"I'm optimistic that things are moving in the right direction," he said.

His comments raised hopes that the BoE could soon cut rates. Its next meeting is in June.

"There is a cautious sense of optimism with analysts predicting we are edging closer to the first cut in interest rates since the pandemic, with the first cut potentially this summer," said Richard Flax, chief investment officer at Moneyfarm.

The Bank of England also released its latest quarterly Monetary Policy Report, with forecasts for growth revised higher and the inflation outlook dropping below three percent, noted XTB research director Kathleen Brooks.

"The economic backdrop has been given a good boost from this Monetary Policy Report, and that is reflected in the FTSE 100, which reached a fresh intra-day record high," she told AFP.

The ECB is expected to cut its rates in June.

But traders hoping for US Federal Reserve cuts have been on a rollercoaster ride this year as a string of forecast-beating inflation readings have forced them to chip away at their expectations.

The consensus is now about two cuts by January, against six estimated at the start of 2024.

But a rise in first-time claims for unemployment benefits, following a soft jobs report last week, bolstered hopes that rate relief is on the way.

Peter Cardillo of Spartan Capital said the higher unemployment claims has helped bond markets. US Treasury bond yields, a proxy for interest rates, moved lower.

While rate cuts will depend on subsequent inflation data, he added: "We are seeing some cracks in the labor market and when that happens, that eventually leads to slow economic activity."

Elsewhere, oil prices ticked higher as investors kept tabs on efforts for a ceasefire in the Middle East, even as Israel presses ahead with an assault on Rafah in southern Gaza.

- Key figures around 2030 GMT -

New York - Dow: UP 0.9 percent at 39,387.76 (close)

New York - S&P 500: UP 0.5 percent at 5,214.08 (close)

New York - Nasdaq Composite: UP 0.3 percent at 16,346.26 (close)

London - FTSE 100: UP 0.3 percent at 8,381.35 (close)

Frankfurt - DAX: UP 1.0 percent at 18,686.60 (close)

Paris - CAC 40: UP 0.7 percent at 8,187.65 (close)

EURO STOXX 50: UP 0.8 percent at 5,054.41 (close)

Tokyo - Nikkei 225: DOWN 0.3 percent at 38,073.98 (close)

Hong Kong - Hang Seng Index: UP 1.2 percent at 18,537.81 (close)

Shanghai - Composite: UP 0.8 percent at 3,154.32 (close)

Euro/dollar: UP at $1.0785 from $1.0748 on Wednesday

Dollar/yen: DOWN at 155.47 yen from 155.53 yen

Pound/dollar: UP at $1.2524 from $1.2498

Euro/pound: UP at 86.09 from 86.00 pence

West Texas Intermediate: UP 0.3 percent at $79.26 per barrel

Brent North Sea Crude: UP 0.4 percent at $83.88 per barrel