European stocks climb, pound plunges after BoE stimulus

European stocks shot higher and the pound plunged after the Bank of England cut interest rates and announced an additional £170 billion of stimulus to counter Brexit fallout.

London gained the most of major bourses, while Tokyo also climbed on bargain hunting. US shares were essentially flat ahead of a key jobs report.

The BoE slashed interest rates to a record low 0.25 percent, cutting borrowing costs for the first time in more than seven years, and hinted at more easing to come.

Britain’s central bank aims to combat what it described as a weaker economic outlook after British voters chose to leave the European Union in a June referendum.

The rate move had been expected, but there was surprise when BoE policymakers also voted unanimously for an emergency package worth up to £170 billion, including £60 billion for more quantitative easing (QE), or bond buying.

“The Monetary Policy Committee decided to implement more policy action than we expected,” Ken Odeluga, market analyst at CityIndex, said.

London’s FTSE 100 index, which had been wobbling beforehand, surged and closed 1.6 percent higher.

The pound fell against both the dollar and the euro while rates of return on British government bonds sagged.

– ‘Sledgehammer on toe’ –

In the eurozone, the Frankfurt and Paris markets also rose, but their closing gains were well behind London’s.

“BoE gets creative in response to Brexit shock,” Kallum Pickering, an economist at Berenberg, headlined a note to investors.

Simon Wells at HSBC said the package may “support confidence” although he wondered “whether all this QE will have a significant impact on the real economy”.

Michael Hewson at CMC Markets said the British central bank may have overreacted to the Brexit shock, possibly without making much difference to the economic outlook.

“It could turn out to be the monetary equivalent of dropping the sledgehammer on one’s toe,” he said.

Wall Street was mostly unchanged, shrugging off the British rate move as US investors looked ahead to Friday’s July jobs report.

Analysts expect the Labor Department report to show the US added 185,000 jobs in July, down from 287,000 in June.

A strong report could offset concerns after last week’s weak report on second-quarter economic growth, while a poor report likely would be seen as further dimming the odds for a Federal Reserve interest rate hike.

“Investors are sitting tight,” said Jack Ablin, chief investment officer at BMO Private Bank.

The Nikkei rose 1.1 percent following a sea-saw session after two days of declines as bargain hunting and yen weakness lifted the market.

– Key figures at 2100 GMT –

New York – DOW: DOWN less than 0.1 percent at 18,352.05 (close)

New York – S&P 500: UP less than 0.1 percent at 2,164.25 (close)

New York – Nasdaq: UP 0.1 percent at 5,166.25 (close)

London – FTSE 100: UP 1.6 percent at 6,740.16 (close)

Frankfurt – DAX 30: UP 0.6 percent at 10,227.86 (close)

Paris – CAC 40: UP 0.6 percent at 4,345.63 (close)

EURO STOXX 50: UP 0.7 percent at 2,932.34 (close)

Tokyo – Nikkei 225: UP 1.1 percent at 16,254.89 (close)

Shanghai – Composite: UP 0.1 percent at 2,982.43 (close)

Hong Kong – Hang Seng: UP 0.4 percent at 21,832.23 (close)

Euro/dollar: DOWN at $1.1131 from $1.1148 Wednesday

Pound/dollar: DOWN at $1.3114 from $1.3316

Euro/Pound: UP at 0.8487 from 0.8373

Dollar/yen: DOWN at 101.22 yen from 101.25 yen