Wall Street hits record high, as Iran tensions send oil price up - as it happened

Bank of England warns that Brexit risks are rising, but investors are cheered by prospect of US interest rate cuts.

• Wall Street surges as Fed flags rate cut
• Bank of England blames Brexit and trade wars for weak growth
• Oil price rises as Iran shoots down US drone
• Fed hints that rates will fall soon

9.28pm BST

A late PS: Barani Krishnan, Senior Commodities Analyst at Investing.com, suggests the White House is caught in two minds over Iran:

"Trump has muddled his response to the Iranian situation, first tweeting that shooting the drone down was a 'big mistake', then backtracking in comments to reporters that it was probably the actions of a 'stupid' individual general."

"The president seems to be bending over backwards these days not to add to geopolitical tensions that could send oil up 5-6% in a day like this. With his reelection bid in, low oil, and gas prices at the pump, seems to be Trump's primary concern. That's why he's even suggested being open to making peace with Tehran, despite the continued noises against Iran by some in his administration."

9.22pm BST

Boom! Hopes that US interest rates will be cut next month have sent Wall Street to a new all-time closing high.

The S&P 500 has ended the day up 28 points at 2,954, a gain of 0.9%, following yesterday's dovish performance by the Federal Reserve.

BREAKING: The S&P 500 closed at a new record, soaring up to 2,954.19 points. The Dow traded higher as well, surging nearly 250 at the close. https://t.co/cgIDf6TvN7 pic.twitter.com/nEWIU0211X

7.54pm BST

US oil prices have now posted their biggest one-day gain in five months.

Donald Trump's warning that Iran has made a "very big mistake" by shooting down one of America's RQ-4 Global Hawk surveillance drones has loomed over energy markets today.

Language from Trump "has driven up oil as traders fear supply in the Middle East might be squeezed by Washington D.C. potentially taking a tougher stance on the country," said David Madden, market analyst at CMC Markets.

July West Texas Intermediate oil CLN19, +5.80% rose $2.89, or 5.4%, to settle at $56.65 a barrel on the New York Mercantile Exchange.

6.20pm BST

This, however, might be reassuring...

Trump: Iran incident could have been someone who was loose and stupid and shot down a drone.

5.21pm BST

This won't calm nerves in the oil market:

In response to a shouted press question about any US response to Iran shootdown of a US Navy surveillance drone, @POTUS was seen to mouth the words, "you'll find out." pic.twitter.com/aOmWUw6uOd

5.09pm BST

Are investors getting carried away by the prospect of a US interest rate cut?

They should remember that central bankers are becoming more cautious because the global economy looks weaker - not really a cause of jubilation.

Rates are being cut because the global economy is, or perceived to be, slowing down amid the escalation of geopolitical risks. With global interest rates already so low, how much of a boost would the economy get from (the promise of) a 25 or 50 basis point reduction in interest rates?

Granted, it will increase the marginal supply of cheap credit further, but that is not the issue here; it is all about marginal demand, or lack thereof, for cheap loans from consumers and businesses because of the latest or upcoming interest rate cuts. I think the law of diminishing returns apply here. Also, with central banks keeping rates so low for such a long period of time, what will happen if the economy were to deteriorate even further?

4.07pm BST

It's important to remember that while Washington and Tehran agree that an American spy drone has been shot down by Iranian forces, they don't agree on where it was flying at the time.

"Iranian reports that the aircraft was over Iran are false. This was an unprovoked attack on a U.S. surveillance asset in international airspace."

"We will defend Iran's airspace and maritime boundaries with all our might. It doesn't matter which country's aircraft cross our airspace."

Related: Iran shoots down US 'spy' drone

3.54pm BST

US crude oil is now up nearly 6%, on fears of disruption in the Gulf.

US crude continuing to rally - JUN WTI $57.07 +5.8% pic.twitter.com/UhuhucsTjX

3.53pm BST

Neil Wilson of Markets.com says Donald Trump's "belligerent" tweet accusing Iran of a 'big mistake' is driving oil up.

Oil has extended gains on this response from the White House, which sounds quite belligerent. West Texas Intermediate is up 5% to 56.76, while Brent has broken up above $64.

Oil has risen to its best in three weeks and now looks to have moved out of its bottoming formation.

Oil prices rally to the day's high after Trump says Iran made a 'very big mistake #JustIn #Oil #CrudeOil #Crude pic.twitter.com/DyDs8Bik2p

3.43pm BST

Oil is on track for its biggest daily rally in five months, driven by concerns that the US and Iran could be heading for military conflict.

3.24pm BST

Oil prices jump to high of the day, up more than 4%, after Trump says Iran made a 'very big mistake' https://t.co/WB7OIYeTIH pic.twitter.com/A2ikEjUUq8

3.21pm BST

Newsflash: President Trump has tweeted that Iran made "a very big mistake" by shooting down a US military drone overnight.

Iran made a very big mistake!

3.15pm BST

Nearly every one of the 30 companies on the Dow Jones industrial average are up too.

The top riser is Nike (+2.45%), followed by several tech firms including Cisco (+2%) and IBM (+1.7%).

3.08pm BST

#Traders see 100% chance the Fed will cut rates in July#Forex #Fx
- Read Full Article: https://t.co/qdSj8e0jjk pic.twitter.com/ooeZ9s272Q

3.02pm BST

President Donald Trump is excited by today's Wall Street action:

S&P opens at Record High!

2.57pm BST

Every sector of the US stock markets has risen today, helping to drive the S&P to today's new all-time peak.

Energy stocks are leading the rally, up 1.8%, followed by technology (+1.34%), miners (+1.2%), healthcare (+1%) and industrial companies (+1%).

2.49pm BST

As explained in the introduction to today's blog, investors are bullish today because America's top central banker has turned more dovish.

Fed chair Jerome Powell told reporters last night that "The case for somewhat more accommodative policy has strengthened," and that his committee wanted to see more economic data before making their next move.

The number circled shows the odds of a 50bps cut by the Fed on July 31st. 32% means it's "debatable." Subject to change, of course, based on factors emerging over the next weeks. Odds are 100% for a 25bps cut. pic.twitter.com/nuAdBnJOAU

2.37pm BST

Boom! Wall Street has hit a new all-time high at the start of trading in New York.

The S&P 500 index has jumped to 2,599 points, it's highest ever intra-day level.

2.17pm BST

Having read the Bank of England minutes, Thomas Pugh of Capital Economics reckons the Monetary Policy Committee is more worried that Britain could crash out of the EU without a deal.

He writes:

Clearly the weaker economic news has played its part in causing the MPC's dovish shift, but there are also signs that the Committee is becoming more concerned about the possibility of a no deal Brexit.

Indeed, instead of chastising the market for underestimating how much interest rates might rise as it did in May, the MPC pointed out "the ongoing tension between the MPC's forecast" of a smooth Brexit and the assumptions about alternative Brexit scenarios that were priced into financial market variables".

1.46pm BST

Here's Associated Press's take on the Bank of England's interest rate decision:

The Bank of England kept its main interest rate on hold at 0.75% on Thursday and warned that a combination of Brexit worries and global trade tensions was weighing on growth.

All nine members of the Monetary Policy Committee backed the decision to not change rates. There had been some expectations in the markets that a couple of them could vote for an increase because of concerns that rising wages will push up inflation.

Monetary policy summary and minutes of the MPC meeting ending on 19 June 2019: https://t.co/LhTDR3G75V pic.twitter.com/BB46VSCRx3

1.38pm BST

There is something slightly odd about today's minutes from the Bank of England, as it leaves interest rates on hold.

On one hand, the Monetary Policy Committee sounds more concerned about Brexit ("the perceived likelihood of a no-deal Brexit has risen"), the economy (no growth is expected in the current quarter) and the balance of risks ("downside risks to growth have increased").

The big question for @bankofengland after the June minutes:

Why has all guidance remained the same when the outlook for the global and UK economy has deteriorated?

Spoiler: there is no answer in the MPC minuteshttps://t.co/pVC13Y2t73

There won't be much defence against being asleep at the wheel, if, so to speak, the wheels come off the economy soon...

But there was this intriguing passage in the minutes.
Unanimity in wanting to leave rates at 0.75%
Just a committee view on BoE's forward outlook

Are there dissenters too shy to come forward? pic.twitter.com/1ElRtNAuRb

1.26pm BST

Professor Costas Milas of Liverpool University suspects that the Bank of England could cut interest rates in the coming months, rather than raise them.

He tells me:

MPC members decide on interest rates based on our economic performance as well as financial/economic policy risks.

On the economic front, monthly GDP data suggests an economy which is at best weak (GDP fell by 0.4% in April) and CPI inflation is equal to the 2% target. Hence, economic front news suggests no need for an interest rate hike any time soon. If anything, economic front news points to an interest rate cut.

12.58pm BST

Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, believes there's no chance of a UK interest rate rise until the next Brexit deadline.

"With Brexit unresolved, it is now practically inconceivable that there will be a rate hike between now and October, despite GDP growth being close to potential. MPC members have been doing the rounds of late, making hawkish comments and it's easy to see why. The labour market is tight and prices are rising in sectors sensitive to the output gap, but - for now - this is being outweighed by weak goods inflation. With headline CPI on target, that's a decision for another day.

"UK businesses continue to be haunted by the looming Brexit deadline of October 31st and the spectre of uncertainty is weighing on activity. Even if a No Deal exit is averted for now, the cost of delay will mount if negotiations are extended once again. Consumers may receive some respite; above inflation earnings growth and continued low interest rates mean UK households have a bit more spending power, which is supporting the economy. With the end of Carney's tenure on the horizon, a rate rise might be an issue for his successor to grapple with."

12.46pm BST

With summer holidays looming, the Bank's gloomy forecasts haven't helped families planning a trip across the Channel.

Sterling has dropped by almost half a euro cent to a1.121, wiping out all yesterday's rally.

12.28pm BST

Bad news for workers: the Bank of England's economists reckon that UK earnings growth "might have levelled off".

Better news: They also predict that inflation (which fell to 2% last month) will fall further in the coming months.

12.21pm BST

The nine policymakers on the Bank's Monetary Policy Committee were unanimous this month.

They all agreed to leave interest rates at 0.75%, and still collectively agree that (should Brexit go smoothly) it makes sense to raise interest rates over the next couple of years.

All members judged at this meeting that the existing stance of monetary policy was appropriate.

The Committee continued to judge that, were the economy to develop broadly in line with its May Inflation Report projections that included an assumption of a smooth Brexit, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.

12.14pm BST

With Brexit now delayed until (at least) 31 October, the Bank of England fears that businesses will keep sitting on their hands rather than buy new equipment and machinery.

The minutes of today's meeting state:

The underlying pattern of relatively strong household consumption growth but weak business investment had persisted.

Surveys suggested that companies expected uncertainty to persist at elevated levels, and there were no clear signs that investment growth would pick up ahead of the October Brexit deadline.

12.07pm BST

The Bank also points to the recent shutdowns in the car industry (as manufacturers braced for a no-deal Brexit that never came).

It hopes that car production will accelerate over the summer:

Weakness in motor vehicle production, related to some car manufacturers' Brexit contingency plans, was likely to push down on Q2 GDP growth, but push up on Q3 growth

12.05pm BST

The Bank has cut its growth forecasts due to the damage caused by Brexit worries, the unwinding of stockpiling, and by the trade conflict between the US and China.

In a statement, it says:

Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices. Forward interest rates in major economies have fallen materially further. Increased Brexit uncertainties have put additional downward pressure on UK forward interest rates and led to a decline in the sterling exchange rate.

As expected, recent UK data have been volatile, in large part due to Brexit-related effects on financial markets and businesses. After growing by 0.5% in 2019 Q1, GDP is now expected to be flat in Q2.

12.02pm BST

Ouch! The Bank of England has also lowered its growth forecast for the second quarter of 2019, to zero.

It had previously forecast 0.2% growth in April-June.

12.00pm BST

Breaking! The Bank of England has voted to leave UK interest rate on hold at 0.75%.

More to follow...

11.48am BST

It's nearly time for the main news of the day - the Bank of England's monetary policy decision.

The City is confident that the BoE will leave interest rates on hold today, at 0.75%. It probably won't make any changes to its quantitative easing programme either (which holds 435bn of mainly UK government bonds).

"Market attention turns to the bank of England in this week's central bank relay.

Participants will be searching for clues from the MPC as to the future path of monetary policy, with retail sales disappointing and inflation running on target, the case for the Bank of England to follow the lead from its US counterpart is gradually building.

11.38am BST

Iran's threat of 'consequences' against America will fuel fears of military conflict in the Gulf region.

The Strait of Hormuz handles around 20% of the world's oil (tankers from Qatar, Kuwait, the UAE and Saudi Arabia's east coast all pass through on their way to the rest of the world)

11.13am BST

Economist Alastair Ross suggests markets are taking the drone shooting quite well:

Oil markets seem remarkably unfazed by fireworks in the Gulf, with prices blipping up by just a couple of percent after US drone is downed.

ref https://t.co/7xY8CevIDb #oilandgas #iran #geopolitics pic.twitter.com/U7238QkROm

10.25am BST

Iran's foreign ministry has now weighed in, criticising America for illegally (it claims) violating its airspace.

Ministry spokesman Abbas Mousavi says:

"Any such violations of Iran's borders are strongly condemned ... We warn of the consequences of such illegal and provocative measures."

10.04am BST

There's another reason oil is rising -- yesterday a rocket hit an Iraqi compound housing several international oil companies, including the US multinational ExxonMobil.

That has heightened concerns that oil shipments from the Middle East could be disrupted.

Multiple rocket attacks in Iraq on US assets and international oil companies, reports that a US drone was taken out by a surface-to-air missile, meanwhile Yemen's Houthi rebels vow to strike airports across Saudi Arabia...never a dull moment @cnbcinternational @dan_murphy pic.twitter.com/CZ0x3dyM3p

9.56am BST

Crude oil prices have jumped sharply after Iran shot down a US spy drone, further straining relations between the two countries.

Both Washington and Tehran insist they are intent on avoiding a war as tensions build over the consequences of the US withdrawal from the Iran nuclear deal in May 2018, but fears that an accidental chain of events will lead to escalation and finally a military confrontation are growing.

The shooting down of the drone came as the US president, Donald Trump, was briefed on the details of a separate incident: a further missile strike in Saudi Arabia that appeared to come from Iran-backed Houthi rebels in Yemen.

Related: Iran shoots down US drone

9.41am BST

Just in: UK retail sales fell in May, as the poor weather deterred people from buying new clothes.

Shoppers bought 0.5% less stuff in May than in April, the Office for National Statistics reports, with the amount spent dropping by 0.3%.

Evidence from retailers suggested that the poor weather may have delayed the sales for summer ranges.

9.12am BST

Some traders reckon America's central bank could pull out its bazooka next month, and slash US interest rates by a chunky 50 basis points.

That would be a serious reversal of its recent policy of raising interest rates, and suggest it is worried about growth prospects.

Fed Funds futures are now pricing in a 100% probability of a July 31 US rate cut with a 50 bp cut currently gaining some traction. #FOMC #FedFunds pic.twitter.com/3c4G1CPjKh

9.11am BST

Newsflash: Norway's central bank has defied the prevailing mood by raising interest rates.

The Norges Bank voted to hike borrowing costs from 1% to 1.25%, in response to rising underlying inflation and solid growth.

The upturn in the Norwegian economy appears to be a little stronger the coming year than projected earlier.

On the other hand, there are prospects for weaker external growth and lower foreign interest rates.

#Norway Norges Bank #InterestRate Decison at 1.25% https://t.co/RAO8lhjMAC pic.twitter.com/LNWTvIhxPc

9.04am BST

Retail analyst Patrick O'Brien of GlobalData says Dixons Carphone isn't keeping up with a fast-moving mobile market:

Dixons Carphone results show a heavy deterioration in the mobile business, down 16% in the second half, or 8% on an l-f-l basis. While Alex Baldock acted fast upon arrival, can't help think that the 92 store closure plan was too timid

The move to sim-free phone buying and keeping phones for longer is a trend that's been here a while now, but it seems that Dixons Carphone hasn't been agile enough to adapt, perhaps due to legacy carrier contracts

Far more galling for investors is the downgrade to expectations for the coming year. While the statutory pre-tax loss for the year to April was 259m, its "headline" pre-tax number was a profit of 298m.

In the new financial year, headline pre-tax profits are set to dip to 210m. Analysts had expected them to hold flat.

The mobile business in particular is on life support, draining capital and resources prior to its integration with the electricals business. The rapidly evolving nature of this segment has threatened to leave Dixons behind and thus, as a matter of urgency, the company has renegotiated its network contracts, although such benefits will take time to wash through. Elsewhere, tepid group revenue growth, lower free cash flow, higher net debt and a previously slashed dividend are far from being cause for celebration.

There are some glimmers of hope, however. The electricals part of the business, particularly in the UK and Ireland, is holding its own in terms of revenue and is also seeing market share growth.

8.46am BST

Ouch! Shares in UK electronics retailer Dixons Carphone have plunged by a quarter in early trading.

Dixons Carphone has shocked the City by warning that its UK mobile business will be "significantly loss making this year", as it struggles to persuade customers to upgrade their phones.

In UK mobile, the market is changing in the way we described in December, but doing so faster. So, we're moving faster to respond: we've renegotiated all our legacy network contracts, we're developing our new customer offer, and are accelerating the integration of Mobile and Electricals into one business.

This means taking more pain in the coming year, when Mobile will make a significant loss.

Dixons Carphone reveals big losses at mobile phone shops https://t.co/9KeFPamkuR

8.36am BST

Stock markets around the globe are also rallying today, thanks to the prospect that America's interest rates could be cut next month.

In London, the FTSE 100 index has jumped by 30 points, or 0.4%, with European indices also rallying.

We all know that central banks have been data dependent, but it is only now that they have started to acknowledge the weakness in the economic numbers.

Last night, the Fed lowered its inflation forecast from 1.8% to 1.5% but , there wasn't any change in the growth forecast. The reason that the event was dovish came from fact that the Fed's outlook of the economy isn't positive; they said the global uncertainties are increasing. They feel it is time to shift the needle of the their monetary policy to spur the growth again or at least not letting the global economy go off the rails.

8.25am BST

The tantalising scent of a US rate cut is lifting the pound away from the five-month low of $1.2504 struck on Tuesday.

Maybe the prospect of a more hawkish Bank of England is helping the pound.

At least Mark Carney doesn't have to deal with a political leader on his case"

The prospect of Boris Johnson taking Britain out of the EU come October 31^st is a risk. There's now talk of a possible general election if he gets in - risky, we know what happened to Theresa May.

The prospect of a general election would not do anything to remove uncertainty around UK assets. Zero clarity still.

8.01am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

"We'd like to see if these risks continue to weigh on the outlook.

We want to see and we want to react to trends that are sustained, that are genuine."

Cut Probabilities 100% after the FOMC statement.

July is 76% for a 25 bps cut, 24% for a 50 bps cut.

If they don't cut 50 in July, the "second" 25 cut in Sept to 1.875% is 87% (67.1% + 19.9%)

Cannot find an example of 100% probability and the Fed failed to deliver. pic.twitter.com/37mSu9ta1C

BOOM! The implied probability of a July #FederalReserve rate cut is now 100%. So that means it's now officially priced in! pic.twitter.com/Eqp4Bx8lKB