The pound tumbled, as gilt yield dropped and riskier assets benefitted in the wake of the Bank of England’s interest rate cut.  The change in the quantitative easing program for the first time since 2009 was a surprise to market participants, helping riskier assets gain traction.  Before the BoE move, Asian stock markets were mostly higher, following the rebound on Wall Street Wednesday. Risk appetite is returning as oil prices climb higher, with WTI above USD 41 per barrel. Despite build in crude oil inventories, oil traders seemed to focus on the draw at Cushing Oklahoma.

The ECB Sees Rates Lower for Longer

The Bank of England was not the only central bank making news on Thursday. The ECB sees rates at current or lower levels for extended period, saying that the modest recovery remains in place, but with risks continuing to point to the downside. The central bank said it its latest economic bulleting that while financial market volatility following the Brexit referendum has been short lived, reducing the uncertainty about economic activity on the global stage.

Inflation meanwhile has remained at low levels. For the Eurozone overall financial conditions remain highly supportive according to the ECB, which highlighted that while the EONIA forward curve has shifted downwards, the sovereign bond spread has narrowed and yields on corporate bonds declined. Nothing really new in the comments, although the ECB stressed again that it will re-assess the situation when the next set of forecasts are available in September, and if necessary use all measures available to reach its objective. So the door to further easing remains open, even if the ECB is not rushing into new bold policy steps. Bund futures briefly dropped into negative territory on the report, but have already moved up from lows and are back in positive territory.

German construction PMI jumped to 51.6 in July from 50.4 in the previous month. Still another sign that the impact of the Brexit referendum on the Eurozone has been very muted after the initial shock.  Most of the sentiment numbers in the EU have been subdued.