Market buzz: BofA dissents from BoE, Amazon hit by Supreme Court

1639: BofA-ML on today's MPC decision: "The minutes from today's meeting contain a number of inconsistencies we find it hard to square (which we explore in this report). While we continue to believe the data will not justify the BoE hiking rates in August, today's meeting increases the risk that they hike regardless.

[...] FX: GBP gains likely to prove limited: Despite the lacklustre evidence that the UK economy has pulled out from its Q1 soft patch, the BoE appears to be in a hurry to hike rates. In doing so, it becomes one of the first central banks to challenge the policy decoupling narrative that has weighed on non-USD G10 FX. Whilst it is too early to call this a turning point in GBP, any further improvement in data in coming weeks could provide further impetus to the pound ([to be] continued)."

(They also express surprise at the BoE's decision to lower the Bank Rate hurdle before starting the process of normalising their balance sheet)

Yield on 10-year Gilts now down by 2bp at 1.27%, after an earlier spike to 1.35% on the back of the MPC announcement.

1622: Marks & Spencer and Microsoft have signed a strategic partnership focused on testing the integration of Microsoft AI technologies into M&S’ customer experience, stores and wider operations.

"The partnership will see the two organisations work together to explore how technologies such as artificial intelligence can be utilised within the retail environment to improve customer experience and optimise operations. A team of world-class AI engineers and product personnel from Microsoft will partner with the M&S Retail Labs team to accelerate M&S’ digital transformation."

1620: The Philadelphia Fed’s manufacturing index retreated sharply, to 19.9 in June, reversing much of last month’s gains.

The index dropped a significant 14.5pts in June, after surging by 11.2pts in May, its lowest level since November 2016.

"If this decline is sustained and further declines unfold in the coming months and are reflected in broader national ISM surveys the healthy industrial sector momentum enjoyed over the last 1.5 years would slow materially," says Mickey Levy at Berenberg. But, at an index of 19.9, the share of firms responding to the Philadelphia Fed’s manufacturing survey reporting an expansion in activity is greater than those reporting a decline

Levy says some of the decline in the index was payback from the May surge, but he feels developments on global trade ‑- the broader implementation of steel and aluminum tariffs and the escalation of trade tensions with China "likely dented sentiment".

Details from the report also suggest that firms remain bullish on future activity and investment plans: a set of special questions show a majority of firms expect growth in production to accelerate in Q3 from Q2 and the six-month ahead capex index, a reliable leading indicator of business fixed investment, rebounded in June.

1534: Shares of internet giant Amazon.com are lower after the Supreme Court of the United States ruled that state governments can require the online collection of sales taxes.

1517: Yield on benchmark 10-year US Treasury note down 4 basis points at 2.90%.

1516: Front month Bent crude oil futures down 1.604% at $73.58 a barrel on the ICE amid talk of a possible OPEC deal to increase output.

Iran has apparently signalled it could support a deal, with Saudi having floated the idea of a 1.0m barrel per day increase and some analysts saying an agreement to raise output by between 0.5 an 1.0m b/d is possible.

1407: Intel has a new CEO in Bob Swan after Brian Krzanich was forced to resign after the company learned he had a relationship with an employee.

Intel says it was recently informed that Krzanich had a past consensual relationship with an employee, which confirmed a violation of its "non-fraternization policy" for managers.

"The board believes strongly in Intel’s strategy and we are confident in Bob Swan’s ability to lead the company as we conduct a robust search for our next CEO. Bob has been instrumental to the development and execution of Intel’s strategy, and we know the company will continue to smoothly execute. We appreciate Brian’s many contributions to Intel," said chairman Andy Bryant.

1354: Barclays analysts point out that the recent acceleration and better-than-anticipated production growth out of the US permian basin has created supply-side constraints "that may curtail production growth in the near-to-medium term", with some producers drop rigs in the basin."We believe these constraints could potentially have a larger than anticipated impact on the 12-18 month production outlook given the majority of production projections are predicated on some form of forecasted demand, well economics, drilling budgets, and production calls on an unconstrained basis, rather than bottom-up analysis of intra-basin market factors. As a result, we think producers may slow down growth in the Permian and build up drilled but uncompleted wells and/or reallocate resources elsewhere until the constraints are worked out."

Barclays believe top beneficiaries are Eagle Ford and Bakken as the flows can bypass Cushing to access the Gulf Coast. When thinking about who could benefit from the Permian constraints, we like COP out of the majors, DK and HFC out of the refiners, and OKE, KMI and NBLX in midstream.

1340: JPMorgan Cazenove has examined the potential impact of the growing electric vehicle market on automotive, battery makers and mining companies, and a note today tempers investor exuberance over lithium and cobalt, in favour of nickel and copper.

EV battery technology is seen transitioning to nickel, at expense of cobalt, as the higher energy density properties of nickel-lithium-ion batteries crosses over with supply chain challenges in cobalt to incentivise greater nickel loadings over time.

JPM does not expect supply tightness in lithium to persist later than 2018 and forecast a rising surplus until 2023, whereas in cobalt, new projects are seen leading to a surplus until at least 2022 before demand is expected to be impacted by substitution towards higher nickel loading.

Barclays sees one major beneficiary: Glencore.

1318: Comments from analysts and economists post the shift of the BoE's monetary policy committee vote to 6-3 from 7-2 in favour of the status quo, indicate chances remain alive of an August hike.

The MPC’s vote and minutes are more hawkish than expected, says Pantheon Macroeconomics, with the MPC continuing to think that "an ongoing tightening of monetary policy" is required, suggesting that it doesn't expect to wait much longer before raising Bank Rate again, repeatedly glossing over weak data that have been published since it last met.

The MPC remains convinced that the Q1 slowdown was just a blip and believes that its forecast for quarter-on-quarter GDP growth to rebound to 0.4% in Q2 is “broadly on track”, placing faith in recovering data indicated in business surveys and downplaying the weakness of the official industrial production and construction data in April.

"Nonetheless," reminds Pantheon, "the MPC has repeatedly talked up the chances of rate hikes, only to disappoint when all the data don’t fall in to place. We still struggle to see how the data will warrant a hike in August [...] The danger that Brexit talks fail to make any progress over the next few months, causing elevated concern among businesses, is very real, given that Mrs May still holds unrealistic expectations for what can be achieved. So, while it’s not out of the question that the MPC raises Bank Rate in August, we continue to expect the Committee to wait until next year."

With interest rates down at 0.50%, the Bank would clearly likely to gradually normalise monetary policy given that it is essentially an emergency low rate, says Howard Archer of the EY Item Club, with inflation above target and the labour market looks relatively tight and little slack left in the economy.

"However, the case for an August interest rate hike is not yet ‘done and dusted’, and could yet be data dependent. Recent UK economic news is far from 100% convincing on the economy’s improvement. Recent slowing earnings growth is also a significant factor, despite the MPC’s confidence that pay will gradually pick up further out. Increasing global trade tensions, as well as ongoing Brexit uncertainties, reinforce the case for Bank of England caution on hiking interest rates," Archer says.

1211: The Bank of England kept the official rate at 0.5% as was widely expected, but chief economist Andy Haldane joined the dissenting group for a 6-3 vote against calling for a rate hike, which has lifted the pound strongly from its lowest level in seven months against the US dollar, while the FTSE has dropped lower.

"Today’s meeting was seen by many as having very little chance of delivering a material change in policy with the focus on any signals for the next meeting and there’s been several strong hints towards an August hike," says David Cheetham, analyst at XTB.

"As well as the change in voting pattern, a key line from the accompanying statement which read that all members are more confident that the Q1 slowdown is temporary have caused a pretty strong hawkish reaction in the markets."

1150: A note from HSBC equity strategists espouses their move from the GARP (growth at a reasonable price) strategy initiated in December back to pure 'Growth', selecting stocks that exhibit positive non-cyclical growth characteristics as "the global cycle is in the early downswing of a late-stage primary bull market regime", benefiting Growth/Momentum/Quality strategies at the cost of Value. "Besides earnings (revisions) momentum, sell-side sentiment and seasonality add to the case. Valuation remains acceptable."

They add: "Value is no longer a strategy component as inflation is likely to peak shortly and we think 10Y Treasury bond yields in the US have already peaked and are likely to decline until end-2018.

"Momentum remains a key component across all regions. Declining PMIs in a late-stage bull market (phase 4a of our style cycle model) remain positive for momentum styles," the strategists adds, with "all markets in downswing mode" no differentiation is made on a regional basis.

1029: Tariffs in the news in Germany and India. A profit warning from Daimler overnight on the back of trade wars, with sales of Mercedes SUV in China being hit by tariffs that China has put on those imported from the US, as well as rising costs. "This may be Daimler using this as an excuse but I expect to see more like this," says Jamie Constable at broker N+1Singer.

Last night, India slapped import duties agricultural and steel imports from the US in retaliation against the White House's new global tariffs on steel and aluminium. On India's list were 20% tariffs on almonds and apples, with 90% tariffs on walnuts.

The government had submitted a notice to World Trade Organization threatening a tariff hike on these products in response to the tariffs by 21 June.

Singer's Constable adds: "We have been hearing that US steel companies have put prices up 20% because they can post the imposition of 25% tariffs. India has put tariffs on US goods overnight so it is escalating.

With a lot of the engineering/capital goods stocks share ratings "sky high", he sees a "lot more scope for disappointment". If investors do take some profits, where do you put the cash? He says: "In the US investors have been buying small caps that aren’t so exposed to overseas markets."

1020: Economist Howard Archer of the EY Item Club says the lower May deficit "boosts hopes that the economy has gained significant momentum in the second quarter after a poor first quarter performance which was seemingly only partly due to the severe weather in late-February and March".

If the pattern of the first two months continued over the full fiscal year, he sees PSNBex coming in at £29.3bn, which is below the £37.1bn shortfall expected.

"Of course, this is very early on in the fiscal year and there is a long way to go, with much likely to depend on how much momentum the economy can regain after its poor start to the year."

1011: While Disney's increased offer for Fox's entertainment assets, including the 39% stake in Sky, has reignited speculation that Fox will now come back and up the bid for the rest of Sky. Liberum analysts say their view remains the same: "while Fox/ Disney (because Disney will, effectively, be buying the assets given they are part of the bid) may indeed bid above Comcast, we do not think it will be bid more than 10% above Comcast's bid, implying 1375p, which is where the shares are now".

Many analysts have been noting that Disney's debt load is set to quadruple under the deal to around $100bn with Disney now on negative credit watch, which will be a factor in any bid decision.

0948: Welcome news for the Chancellor as UK public finances continue to improve, with May’s PSNB-ex-banks deficit of £5.0bn down from £7.0bn a year earlier.

Overall, the budget deficit amounted to £11.8bn in April/May which was down 25.8% from £16.0bn in the first two months of fiscal year 2017/18.

0934: The FTSE 100 is up 0.3% at 7,650.82. The pound is falling, however, down 0.3% against the dollar to 1.3135, levels last seen in the first half of November.

0928: What should we expect from today's Bank of England announcement, with the possibility of a rate hike this month looking extremely unlikely and no press conference either.

With no changes to policy, traders will be looking for more subtle clues about when we can expect the next rate hike with the next meeting. August's meeting will include new economic projections and a press conference, otherwise known as Super Thursday.

"There hasn't been sufficient evidence yet that the downturn in the first quarter was a blip," says market analyst Craig Erlam at Oanda. "The recent retail sales data was encouraging and there has been some improvement in the PMI surveys which provides hope but I'm not convinced that will be enough. There's also no press conference or new economic projections accompanying this decision which at this stage of the tightening cycle I think policy makers would prefer.

"The central bank has also been heavily criticized for misleading investors, so to raise interest rates without warning would just invite more criticism and raise questions over the banks forward guidance, or lack of. Finally, with Brexit negotiations at such a critical stage, it would seem an odd time to be hiking interest rates. Later in the year when we have more clarity would surely be more suitable."

Markets are currently pricing only a small chance of about 40% of a hike in August, which Erlam says may be where the potential for surprise lies today. "A strong signal that the central bank is going to push ahead with a hike at the next meeting – either in an accompanying statement or with more policy makers voting for a hike – could also be bullish for the pound."

0917: Goldman Sachs expects a modest 3% rise in the S&P 500 to a year-end target of 2850 followed by a 5% gain in 2019 to 3000.

"The US economy is growing, corporate profits are rising, and stock prices should continue to climb through 2019. However, the appreciation potential will be constrained by tightening monetary policy, a flattening yield curve, rising trade tensions, and the upcoming mid-term Congressional elections."

Goldman has raised its S&P 500 earnings estimates for each of the next three years, seeing EPS surging 19% to $159 this year, with profit growth of 7% to $170 in 2019 followed by 5% growth to $178 in 2020.

"Cyclicals should continue to outperform," Goldman says, reiterate its 'overweight' recommendation on Financials, with Banks expected to boost capital returned to shareholders via buybacks and dividends by 21%; the Information Technology sector is hiked to 'overweight' from 'neutral', with technology post among the fastest sales and earnings growth through 2019 and the sector seen benefiting in the current late cycle environment; Industrials are downgraded to 'neutral' from 'overweight' given decelerating economic growth and rising input costs.

0821: The FTSE 100 has started higher, as expected, rising 0.5% to 7,667.2.

Here's Lee Wild, head of equity strategy at broker Interactive Investor, on the BoE meeting later: "Today’s Bank of England policy meeting is a non-event. There’s no way the MPC will raise interest rates at lunchtime, and even August is looker doubtful now. Hot money’s shifting to a November hike, or even later.

"Alongside receding inflation concerns, political mismanagement of the Brexit process and dollar buying, it’s no wonder sterling remains glued to a seven-month low. That may change if Donald Trump continues his game of brinkmanship with the Chinese over trade tariffs. It’s a dangerous policy not just for China and the US, but for Europe, Canada and America’s other trading partners. There’s still a good chance this is just more Trump chest-beating and not a situation that will spiral out of control, which explains why we’re seeing buying on any dips in equity markets.”

0814: Pearson's rival Barnes & Noble Education delivered an unexpected positive fourth-quarter earnings number. "However, what they said on the call was not positive for Pearson," says Liberum analyst Ian Whittaker, highlighting three things: price deflation rearing its head, guidance suggesting a very weak market and further weakness in Community College enrolments that looks like a structural trend.

Pearson is down a few pennies today so far.

0749: The market decided to take a breather from being afraid of Trade Wars yesterday, with Rabobank analysts suggesting its was "perhaps because like Star Wars, there's now too much of them, or because our friends the algorithms that nowadays drive so much equity trading didn't pick up on any new headlines actively saying 'trade war', and so decided it was time to buy again".

Rabobank notes reports in the Wall Street Journal that Germany is already preparing to wave the white flag, with auto-makers lobbying for the removal of EU (10%) and US (2.5%) auto tariffs in tandem to prevent the threat of the very lucrative US market being closed off to them, as President Trump has warned.

"The US might not be big on Germany's lack of spine when it comes to NATO, but they will be thrilled with that kind of economic surrender... That's good news. Except that it will probably fire up the Trump administration to think that it won't be long until China cracks too."

0744: The FTSE 100 is set to gain 37 points at the open on Thursday, traders reckon, as investors eyed the latest policy announcement form the Bank of England.

The London pre-open report has some comment from CMC Markets analyst Michael Hewson: "The pound got a lift yesterday after the UK government avoided a defeat in Parliament on a key Brexit vote, and will remain in the spotlight today with the latest instalment in the will they, won’t they, saga from the Bank of England in to when the MPC will finally throw off the shackles of indecision and policy paralysis and finally deliver on an often broken pledge to raise interest rates away from where they have been for nearly all of the last 9 years."

0741: New Zealand's PM Jacinda Ardern has given birth to a baby girl, it has been reported. The NZD is down 0.57% against its US counterpart, with markets perhaps wanting a boy.

0734: Barclays currency heads are upping their US dollar forecasts across the board, "as economic divergence between the US economy and others has exceeded our expectations". Disappointing growth in the rest of the world as the US continues to power ahead has "turned a pause in economic convergence into outright divergence", which is felt likely to support longer and greater USD strength than previously anticipated.