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Bank of England Drops Rates, Expands QE

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Thursday, August 4, 2016

Market futures jumped up this morning on news by the Bank of England (BOE) to cut interest rates 25 basis points for the first time since March 2009. BOE Governor Mark Carney also announced raising the central bank’s quantitative easing (QE) program by GBP 60 billion, pushing the nation’s total to GBP 435 billion. The BOE is also buying back 10 billion pounds of corporate bonds.

This appears to the markets to be a proactive move on the part of the BOE. After all, Brexit doesn’t even officially happen until after Article 50 is passed by British Parliament. But with the pound having already fallen following the Brexit vote six weeks ago, some might question the need for such a measure at this point in time. The pound has fallen again on this latest move.

European market indexes were up across the board as a result, though modestly. Here in the U.S., the Dow raced up 50 points but have since receded as the opening bell gets closer today. In fact, Nasdaq futures, which had been up close to 5 points on the BOE news, has now slipped into slightly negative territory less than an hour prior to regular Thursday trading.

Initial Jobless Claims for the week rose 3000 to 269K from an unrevised 266K the previous week. This keeps jobless claims squarely within the 250-275K range, which indicates strength in the U.S. labor market. Of course, the big number is expected tomorrow morning before the opening bell when the Bureau of Labor Statistics (BLS) releases its monthly non-farm payroll report.

Analysts estimate roughly 179K new jobs created in the month of July, smack dab in the middle of the roller coaster ride this metric has been on over the last two months. For June, the BLS reported 287K new jobs (way ahead of expectations) but for May produced only 11K jobs (way behind). Yesterday’s private-sector jobs survey from ADP (ADP - Free Report) posted an in-line with estimates 169K, which, with an average of 10K government jobs gains per month, moves the BLS estimate up to 179K.

In earnings news, Viacom posted fiscal Q3 earnings and revenues that beat the Zacks consensus estimates on both top and bottom lines. Shares are up 4.8% in early trading following the report on strong growth in the company’s film division (despite a commercial flop with the latest “Teenage Mutant Ninja Turtles” movie).

However, what VIA investors are mostly interested with is the ongoing saga between Viacom’s current CEO and the family of Sumner Redstone, Viacom’s long-time boss. No fewer than three court cases are scheduled to open this October in Massachusetts, Delaware and California, and these will determine the longer-term trajectory of Viacom’s future.

Mark Vickery
Senior Editor

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