London, Frankfurt stocks hit record highs on rate-cut hopes

The London and Frankfurt stock exchanges hit record highs Thursday as the Bank of England kept its interest rate at a 16-year high but raised hopes of a cut in the coming months.

Meanwhile, Wall Street failed to gain any traction from data showing a climb in claims for unemployment benefits that could raise the prospect of a US rate cut.

The British capital's benchmark FTSE 100 index, which has been breaking records repeatedly in recent days, topped 8,390 points around midday before paring down some gains.

The DAX in Frankfurt jumped above 18,600 points. The Paris CAC 40 also rose after falling earlier in the day.

The Bank of England kept its key rate at 5.25 percent for a sixth meeting in a row in efforts to tame inflation, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.

UK annual inflation fell less than expected in March to 3.2 percent but BoE Governor Andrew Bailey voiced optimism that it would soon return to the central bank's two-percent target.

"I'm optimistic that things are moving in the right direction," he said.

His comments raised hopes that the BoE could soon cut rates. Its next meeting is in June.

"There is a cautious sense of optimism with analysts predicting we are edging closer to the first cut in interest rates since the pandemic, with the first cut potentially this summer," said Richard Flax, chief investment officer at Moneyfarm.

The Bank of England also released its latest quarterly Monetary Policy Report, with forecasts for growth revised higher and the inflation outlook dropping below three percent, noted XTB research director Kathleen Brooks.

"The economic backdrop has been given a good boost from this Monetary Policy report, and that is reflected in the FTSE 100, which reached a fresh intra-day record high," she told AFP.

While others are holding rates higher, Sweden's central bank on Wednesday reduced borrowing costs for the first time in eight years and signalled more were in the pipeline.

The Riksbank decision was announced nearly two months after the Swiss National Bank became the first major Western central bank to move since a global tightening campaign to fight inflation fuelled by Covid recovery and the Ukraine war.

The ECB is expected to cut its rates in June.

But traders hoping for US Federal Reserve cuts have been on a rollercoaster ride this year as a string of forecast-beating inflation readings have forced them to chip away at their expectations.

The consensus is now about two cuts by January, against six estimated at the start of 2024.

But a rise in first-time claims for unemployment benefits, following a soft jobs report last week, bolstered hopes that rate relief is on the way.

"The key takeaway from the report is the jump in initial claims, which will be construed as a sign of softening in the labor market," said Briefing.com analyst Patrick O'Hare.

"That view, in turn, will be construed as a possible trigger for a Fed rate cut in coming months," he added.

Elsewhere, oil prices ticked higher as investors keep tabs on efforts for a ceasefire in the Middle East, even as Israel presses ahead with an assault on Rafah in southern Gaza.

  Key figures around 1330 GMT 

 New York - Dow: DOWN 0.2 percent at 38,995.05 points

New York - S&P 500: FLAT at 5,189.10

New York - Nasdaq Composite: UP 0.2 percent at 16,331.34

London - FTSE 100: UP 0.2 percent at 8,368.52

Frankfurt - DAX: UP 0.9 percent at 18,659.42

Paris - CAC 40: UP 0.4 percent at 8,159.77

EURO STOXX 50: UP less than 0.1 percent at 5,040.81

Tokyo - Nikkei 225: DOWN 0.3 percent at 38,073.98 (close)

Hong Kong - Hang Seng Index: UP 1.2 percent at 18,537.81 (close)

Shanghai - Composite: UP 0.8 percent at 3,154.32 (close)

Euro/dollar: UP at $1.0760 from $1.0748 on Wednesday

Dollar/yen: UP at 155.74 yen from 155.63 yen

Pound/dollar: UP at $1.2500 from $1.2495

Euro/pound: UP at 86.08 from 86.00 pence

West Texas Intermediate: UP 0.1 percent at $79.08 per barrel

Brent North Sea Crude: UP less than 0.1 percent at $83.62 per barrel