Bank of England's rate cut boosts investors' risk appetite, pushes oil up

TORONTO – The Bank of England’s decision to slash its key interest rate in half to a historic low boosted commodities Thursday as investors moved away from safe havens.

“I think the highlight today is that even though global equities are more or less flat for the day, we’re seeing a pick up in risk appetite and the commodities space is doing well this morning,” said Scott Smith, regional director of hedging solutions at Cambridge Global Payments.

“A lot of that is based on the decision by the Bank of England.”

The British central bank decided to cut its key rate from 0.5 to 0.25, its first rate cut in seven years. The bank also said it would purchase up to roughly C$102.5 billion of government bonds and about $17.1 billion of corporate bonds.

The moves look to inject confidence into the national economy after the country voted in a referendum to leave the European Union.

Unlike the Bank of Japan, which failed to give investors the aggressive stimulus action they hoped for last week, the Bank of England didn’t disappoint the markets, Smith said.

That prompted investors to rotate away from safe haven assets, like the bond market, and look for higher yielding asset classes, he added.

The boost in risk appetite flowed through to the commodity markets and allowed oil to gain strongly on the day, as the September crude contract rose $1.10 at US$41.93 per barrel.

Elsewhere in commodities, December gold rose $2.70 to US$1,367.40 an ounce, while September copper fell $2.45 cents to US$2.17 a pound and September natural gas retreated half a cent to $2.83 per mmBTU.

Currencies correlated to commodities and high yielding asset classes, like the commodity-sensitive Canadian dollar and Australian currency, also performed well today, Smith said.

The loonie rose 0.28 of a cent, up to 76.79 cents US.

North American stock markets remained, to some extent, in “somewhat of a summer doldrums state right now,” Smith said, and showed little movement from Wednesday’s close.

In Toronto, the S&P/TSX composite index gained a modest 16.73 points at 14,528.78.

Meanwhile in New York, the main indexes were near break even.

The Dow Jones industrial average declined 2.95 points at 18,352.05, the broader S&P 500 composite index rose 0.46 points to 2,164.25 and the Nasdaq composite gained 6.51 points to 5,166.25.

Going into Friday, investors will be keeping a close eye on jobs data. Statistics Canada is set to release monthly jobs figures, while the July employment report is expected south of the border.

— With files from the Associated Press

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