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Wall Street bounces off lows as UK steps in to calm bonds

Economy Sep 28, 2022 04:38PM ET
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© Reuters. FILE PHOTO: A man on a bicycle stands in front of an electronic board showing Shanghai stock index, Nikkei share price index and Dow Jones Industrial Average outside a brokerage in Tokyo, Japan September 22, 2022. REUTERS/Kim Kyung-Hoon
 
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By Lawrence Delevingne

(Reuters) -Global equities staged a partial comeback on Wednesday -- with Wall Street stocks surging around 2% -- as the Bank of England said it would step in to the bond market in an attempt to dampen investors' fears of contagion across the financial system.

The BoE said it would temporarily buy long-dated bonds - linked most closely to workers' pensions and home loans - in light of a surge in UK bond yields and related borrowing costs.

Sterling, which hit record lows against the dollar on Monday, was last up about 1.4% in volatile trading, while gilt prices roared higher. European government bonds also got a lift from the surge in gilts.

Investors have been rattled in the last week in particular by soaring bond yields, as central bankers have raced to raise interest rates to contain red-hot inflation before it tips the global economy into recession.

The dollar, the ultimate safe-haven in times of market turmoil, was down about 1.2%, easing from two-decade highs spurred on by yields on the benchmark 10-year Treasury approaching 4.0% for the first time since 2008. Yields on other U.S. government bonds also declined on Wednesday.

The MSCI All-World index was last up about 1.3%, having pulled off a session trough that marked its lowest level since November 2020. It is still heading for a more than 7% drop in September - its biggest monthly decline since March 2020's fall of 13%.

In Europe, the STOXX 600 and FTSE 100 both pared losses to finish up about 0.3%.

Wall Street's rebound gained momentum over the day, with the S&P 500 Index up about 2% after it fell to a two year low on Tuesday. The Dow Jones Industrial Average also gained 1.9% and the Nasdaq Composite was up about 2%.

Weighing on growth stocks was Apple Inc (NASDAQ:AAPL), which was down about 1.3% on a report the tech company was dropping its plans to boost production of the latest model of its flagship iPhone.

Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors LLC in Minneapolis, said the UK intervention had helped calm U.S. markets, but that the "temporary stability is something of an illusion."

Doty cited the widening gap between 10-year treasury yields and 30-year mortgage rates, which he attributed to the Fed reducing its mortgage securities and the sharp inversion of the yield curve resulting from the Fed’s "aggressive determination to damage economic activity."

UK MARKETS STORM

At the heart of earlier sell-off across global markets was the British government's so-called mini-budget last week which announced a raft of tax cuts and little in the way of detail as to how those would be funded.

The International Monetary Fund and ratings agency Moody's (NYSE:MCO) criticised Britain's new economic strategy announced on Friday, which has sparked a collapse in the value of British assets.

Strategists at Amundi, Europe's largest asset manager, said earlier on Wednesday they believed UK assets were in for more losses, as the UK's fiscal credibility remained on the line.

"We believe risks remain tilted to the downside – given how much is already priced-in, less aggressive signalling from the BoE will accelerate the move to below parity (for sterling/dollar), in our view," strategists led by Laurent Crosnier, global head of FX, wrote, recommending investors avoid pounds.

Oil prices jumped higher on Wednesday for a second day, rebounding from recent losses as the U.S. dollar eased off recent gains and U.S. fuel inventory figures showed larger-than-expected drawdowns and a rebound in consumer demand. U.S. crude rose 4.5% to $82.06 per barrel and Brent was at $89.22, up 3.4% on the day.

Spot gold added 2.0% to $1,660.79 an ounce. U.S. gold futures gained 2.04% to $1,659.70 an ounce.

Scott Wren, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute, said markets may already be pricing in future pain.

"Should the economy slow and eventually fall into recession and inflation stays higher for longer, we believe financial asset prices have adjusted to reflect this likely reality," Wren wrote in a client note released on Wednesday. "Eventually, brighter skies will be on the horizon."

Wall Street bounces off lows as UK steps in to calm bonds
 

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Comments (20)
Harlan Sk
Harlan Sep 29, 2022 5:39AM ET
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Up We Go Then
Dave Jones
Dave Jones Sep 29, 2022 2:57AM ET
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UK turned on the printers again! Money printer go brrr! That's HYPERINFLATIONARY
Mark Rostern
Mark Rostern Sep 28, 2022 10:15PM ET
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Great move by UK plc, I hope the hedge funds shorting SUK bonds and Sterling take a beating! They make millions/billions forcing up interest rates for hard working families and no doubt take great pleasure from people losing their homes. Let us hope we csn have a headline Kwarteng the guy who broke Crispin Odey!
Chad Richer Than You
Chad Richer Than You Sep 28, 2022 3:56PM ET
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Big thanks to England
Dave Jones
Dave Jones Sep 28, 2022 2:45PM ET
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so this is QE again?
Steven ML
Steven ML Sep 28, 2022 2:28PM ET
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Dear Carlos and First Last, please continue your childish bickering on a different platform. May I propose Sesame Street?
Show previous replies (1)
First Last
First Last Sep 28, 2022 2:28PM ET
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carlos guo   You falsely accused me of banning you, then admit you can  see my posts.  Go figure.
First Last
First Last Sep 28, 2022 2:28PM ET
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carlos guo   Maybe you're being banned for making false accusations  ;-)
Matt Kay
Matt Kay Sep 28, 2022 2:28PM ET
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on the web version there is a way to block users. fyi
Stephen Fa
Stephen Fa Sep 28, 2022 2:28PM ET
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Dave Jones Comment of the say here
Stephen Fa
Stephen Fa Sep 28, 2022 2:28PM ET
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Only snowflakes block
Buy And Sell
Buy And Sell Sep 28, 2022 2:23PM ET
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A temporary rally due to Britains central bank. This will not calm investors. The fall will persist over a long period. Sell now or go broke.
Chad Richer Than You
Chad Richer Than You Sep 28, 2022 2:23PM ET
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You're broke already xD
animus advertere
animus advertere Sep 28, 2022 1:39PM ET
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Insiders in the UK got rich off of this 'move'. I'm sure UK consumers will be thrilled when their inflation rate skyrockets into the teens.
First Last
First Last Sep 28, 2022 1:27PM ET
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carlos lying again: "Bank of England moves to calm bond market rout after tax cut storm" -- www.reuters.com/world/uk/imf-moodys-censure-uk-policy-bank-england-says-will-act-big-2022-09-28/
First Last
First Last Sep 28, 2022 1:27PM ET
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(He's also lying about me blocking him.)
First Last
First Last Sep 28, 2022 1:27PM ET
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He had said he would block me in one of his many now defunct accounts.
First Last
First Last Sep 28, 2022 1:27PM ET
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The BOE controls interest rates (eg. by buying long-dated bonds), NOT surprise tax cuts which spiked rates.
First Last
First Last Sep 28, 2022 1:27PM ET
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The root cause of the recent "damaging rise in borrowing costs" IS the "tax cut storm".  The BOE, like the Fed Reserve, doesn't usually change policy w/out advance warning.  The "tax cut storm" was an unusual event outside the BOE's control.
Stephen Fa
Stephen Fa Sep 28, 2022 1:27PM ET
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Carlos in the head lol
Bill Powers
Bill Powers Sep 28, 2022 1:27PM ET
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lmao Carlos guo blocked me
First Last
First Last Sep 28, 2022 1:27PM ET
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Wait for him to accuse you of blocking him.   Retrumplican projection, as usual.
Stephen Fa
Stephen Fa Sep 28, 2022 1:27PM ET
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First Last More popcorn please
 
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