ARM drags FTSE higher

At the close of the markets today, Martin Weale has dampened BoE expectations while markets were driven by ECB expectations says Joshua Mahony, market analyst at IG

ARM drags FTSE higher

There is no doubt that today’s big story has come courtesy of Softbank’s acquisition of ARM. On an otherwise unremarkable day, the incredible 43% premium being paid for ARM means that the stock has single-handedly managed to drag the markets into the green.

While Theresa May and Phillip Hammond publicly praised today’s deal as a vote of confidence for the UK, this deal also highlights the risk that there may not be much left by the time the pound resurfaces. For all the talk of a spike in exports driven by sterling devaluation, it could in fact turn out that we will simply see shoppers buy the store.

MPC member Martin Weale today put a dampener on expectations in the markets of easing at the August Bank of England meeting, despite the minutes looking overwhelmingly dovish. Data is what is important for the BoE for the next month, with any clues of a post-Referendum slowdown providing ground to ease once more.

With markets now seeing an 84% chance of a rate cut in August, it is clear that despite Weale’s opposition, the statement of intent in the minutes point towards action next month. The fact is that a decision not to ease will completely undermine Mark Carney who not only said we would see the BoE ease this summer, but also that a choice to leave the EU would be hugely detrimental to the UK economy.

To hold off would essentially mean that the Committee sees Carney’s pre-Referendum warnings as potential fabrications.

Ever since the EU Referendum result, the expectation of a looser monetary policy landscape has helped boost stocks despite the clear economic implications. This week sees the ECB in the spotlight, following the decision from the BoE to hold off until August.

Amid a lack of data, there is reason to believe the ECB will also hold off, yet just the possibility of action means we are likely to see volatility ramp up in anticipation this week.

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