U.K.’s blue-chip stocks sought firm direction Thursday, as mining shares fell alongside a drop in metals prices, while bank shares advanced after the U.S. Federal Reserve delivered an interest-rate increase.
Equities were little-changed and the pound pulled back after the Bank of England met widely held expectations by leaving its key interest rate at a record low and the size of its asset-buying program unchanged as rate-setting policy makers wrapped up their work for 2016.
The FTSE 100 UKX, +0.15% was off less than 0.1% at 6,953.90 after darting slightly into positive territory. Decliners included consumer goods, industrial and oil shares, but financial, consumer services and utility shares moved higher. Advancers included Centrica PLC CNA, +5.03% with shares up 2.5% after the parent of British Gas raised its 2016 financial targets.
The British blue-chip benchmark on Wednesday shed 0.3%.
Mining drop: Mining shares were losing the most Thursday as dollar-denominated prices for metals were driven down sharply. Gold GCG7, -2.84% dropped nearly 3%, trading at levels last seen in early February, while silver SIZ6, -6.40% lost nearly 4%.
Those declines came as the ICE U.S. Dollar DXY, +0.72% climbed to its highest since 2003. That move came after the Fed raised its key short-term interest rate to a range of 0.5%-0.75% and signaled a more aggressive approach in 2017. President-elect Donald Trump’s policy proposals, such as more fiscal spending, could lead to a build up in inflationary pressures and aid economic growth.
“The market is fully embracing Trumpenomics, which is bad news for emerging markets with dollar-denominated debts. It also signals the beginning of the end of the low interest-rate environment,” said Kathleen Brooks, research director at City Index, in a Thursday note.
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Mining stocks can be sensitive to economic developments in emerging markets. Among miners, precious metals producer Fresnillo PLC FRES, -6.36% slid 9.8%, Randgold Resources PLC RRS, -8.08% slumped 8.6%, and BHP Billiton PLC BLT, -3.76% BHP, -3.10% BHP, -1.82% fell 3.5%.
Diversified miner Rio Tinto PLC RIO, -3.93% RIO, -1.93% RIO, -1.43% shares fell 4.5%, while Glencore PLC GLEN, -3.42% gave up 3.1%. Anglo American PLC AAL, -4.24% shares were 3.6% lower, and Antofagasta PLC ANTO, -4.92% lost 4.3%.
Banks: But higher interest rates bode well for banks. As well, global bond yields were rising Thursday, which can also be beneficial for bank profitability. Royal Bank of Scotland Group RBS, +3.82% RBS, -2.67% drove up 2.9%, Barclays PLC BARC, +3.04% BCS, -4.04% rose 2.7% and Lloyds Banking Group PLC LLOY, +1.82% LYG, -0.94% gained 1.5%.
Economic docket: The Bank of England in an unanimous decision left its key interest rate at a record low 0.25% and left unchanged the size of its asset purchase program at £435 billion ($543 billion). It also held unchanged its corporate-bond purchase program at £10 billion.
“Steady as she goes from the Bank of England. We think the next few meetings could turn out as today’s did, with little action until firms and consumers respond to the actual triggering of Article 50 and the beginning of the Brexit process,” wrote State Street Global Markets strategists Tim Graf and Stephen Yeats.
“And that’s even with inflation creeping higher, as the Monetary Policy Committee has already indicated they will look through near-term upside price pressures. February’s quarterly inflation report is likely the next major event for BOE watchers; unfortunately, it is still just under two months away,” the strategists said.
This week, Britain’s consumer-price index leapt above 1% for the first time since October 2014.
“Sterling’s effect on CPI inflation will ultimately prove temporary and fully offsetting it would require exerting further downward pressure on domestic costs, including wages, and would therefore involve lost output and higher unemployment,” the BOE said in a statement.
The pound GBPUSD, -0.5492% was buying $1.2476, slightly lower than where it traded below the BOE decision was released. Sterling late Thursday bought $1.2617. Sterling has been under pressure as the dollar strengthened in the wake of the Fed decision.
Separately, British retail sales rose 5.9% in November year-over-year, the Office for National Statistics said. That met an estimate from analysts polled by FactSet.