The pound fell back below $1.06 but London stock prices clawed back some lost ground on Wednesday, after the Bank of England intervened in the stumbling gilt market to buy long-dated UK government bonds.
The FTSE 100 index was down 25.40 points, or 0.4%, at 6,959.19 midday Wednesday. It had been down around 2% in earlier dealings, falling as low as 6,836.34 points, its weakest intraday level since early March.
The mid-cap FTSE 250 index was down 105.52 points, or 0.6%, at 17,198.59. The AIM All-Share index was down 15.82 points, or 1.9%, at 805.53.
The Cboe UK 100 index was down 0.4% at 694.89. The Cboe 250 also down 0.8%, at 14,705.00, and the Cboe Small Companies was down 1.3% at 12,584.85.
The CAC 40 stock index in Paris was down 0.3% midday Wednesday, while the DAX 40 in Frankfurt was down 0.7%.
In New York, stocks were called lower. The Dow Jones Industrial Average was called down 0.1%, the S&P 500 down 0.2% and the Nasdaq Composite down 0.6%.
The pound fell to $1.0591 midday Wednesday, down from $1.0756 at the London equities close on Tuesday.
The Bank of England has moved to calm UK bond markets. The central bank will buy up government bonds to ‘restore orderly market conditions’.
‘The bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets,’ the BoE explained.
‘This repricing has become more significant in the past day - and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.’
The BoE said it will temporarily purchase long-dated UK government bonds from Wednesday. It will not change the bank's aim of a targeted £80 billion annual reduction in government bond holdings.
UK borrowing costs jumped as investors were spooked by the unfunded tax cuts announced by Chancellor Kwasi Kwarteng on Friday last week. Kwarteng is meeting with City bankers on Wednesday in a bid to calm markets.
Brown Brothers Harriman said the BoE's emergency bond buying did nothing for sterling. ‘The combination of ongoing risk-off impulses and repricing of Fed tightening risks is likely to keep the dollar bid across the board near-term,’ said Win Thin, global head of currency strategy. ‘With the outlook for the rest of the world still worsening, the global backdrop continues to favour the dollar and US assets in general.’
Equity markets in London got a boost from the BoE's intervention, paring deeper losses.
Stocks that have suffered during what has been a tumultuous week so far, earned some respite. Housebuilders Taylor Wimpey, Persimmon and Barratt spent most of the morning in the red. They were up 2.2%, 1.5% and 2.3% after the BoE intervention, however.
The euro faded to $0.9561 midday Wednesday from $0.9596 at the European equities close on Tuesday.
Fears of a potential European energy crisis intensified after leaks in Baltic Sea gas pipelines between Russia and Europe were found.
EU chief Ursula Von der Leyen said ‘sabotage’ caused the leaks. She threatened the ‘strongest possible response’ to any deliberate disruption of European energy infrastructure.
The Nord Stream 1 and 2 pipelines have been at the centre of political tensions in recent months as Russia cut gas supplies to Europe in suspected retaliation against Western sanctions following its invasion of Ukraine.
Elsewhere among major currencies, the dollar faded to JP¥144.65 midday Wednesday UK time from JP¥144.79 at the time of the London equities close on Tuesday.
Back on the London Stock Exchange, Burberry was the best FTSE 100 performer at midday. The stock rose 3.8%.
It named Daniel Lee as its new creative chief, replacing Riccardo Tisci.
The London-based fashion retailer said Tisci will leave at the end of this month after almost five years in the post as chief creative officer.
Burberry hailed Tisci for improving the brand's fortunes, including offering it much-needed relevance with younger shoppers. Lee's debut runway collection for Burberry will be presented at London Fashion Week in February 2023.
UBS took heart from the ‘immediate appointment’, which reduces any disruption.
‘We would expect today's announcements to be taken well by the market,’ the Swiss bank added.
The market was less positive on the latest boohoo update. The online retailer cut its margin guidance.
boohoo swung to a first-half loss, with earnings hurt by weak consumer confidence and a staggering number of clothing returns. Return rates were ‘up significantly year-on-year’, boohoo said.
In the six months to August 31, revenue fell 10% year-on-year to £882.4 million from £975.9 million. Revenue was up 56% from pre-virus levels, however. boohoo swung to a £15.2 million pretax loss from a £24.6 million profit a year earlier.
Margins weakened markedly. Its adjusted earnings before interest, tax, depreciation and amortisation margin fell to 4.0% from 8.7%.
boohoo now expects an annual adjusted Ebitda margin between 3% and 5%, trimmed from its previous 4% to 7% guidance range.
boohoo shares were 7.3% lower midday Wednesday, while peer Asos lost 5.0% in a negative read-across.
Gold fell to $1,628.91 an ounce midday Wednesday from $1,633.10 at the London equities close on Tuesday. A barrel of Brent oil rose to $86.91, from $86.44.
Still to come on Wednesday's economic calendar is the US goods trade balance at 1330 BST.
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