An emergency intervention by the Bank of England - signalling a monetary policy u-turn - calmed investor fears on Wednesday, sending equity markets higher.
The central bank announced it will be temporarily buying long-dated UK bonds.
The BoE said the purpose of the ‘purchases will be to restore orderly market conditions’ after UK government bonds were significantly affected by ‘repricing’. The purchases, which will start on Wednesday, will be carried out on ‘whatever scale is necessary to effect this outcome.’
‘Inflation to the left of them, recession to the right, onward into the valley of unorthodox monetary policy go Bank of England Governor Andrew Bailey and the Monetary Policy Committee,’ AJ Bell investment director Russ Mould said.
‘Just a week after a lower-than-expected interest rate increase and confirmation of plan to sell gilts and start quantitative tightening, the Bank of England is now buying more of them in what looks like more quantitative easing. Suffice to say that some will undoubtedly see this as a further sign of just how much trouble the Old Lady of Threadneedle Street is in.’
The pound was lower after the announcement, but the UK government's 30-year bond yield retreated to 4.44%, having hit a 1998 peak at 5.14%, and slipped even further to 3.93% as the session dragged on. The yield was sitting around 4.96% before the London equities market opened on Wednesday.
The FTSE 100 index closed up 20.80 points, or 0.3%, at 7,005.39 on 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 ended up 16.86 points, or 0.1%, at 17,320.97. The midcaps had spent the entire session in the red before late buying. The AIM All-Share index closed down 7.37 points, or 0.9%, at 813.98.
The Cboe UK 100 index closed up 0.1% at 698.81. The Cboe 250 ended down 0.1% at 14,817.68, and the Cboe Small Companies closed down 0.4% at 12,697.26.
The CAC 40 stock index in Paris closed up 0.2%, while the DAX 40 in Frankfurt added 0.4%.
Sterling regained its poise, too.
Daniel Mahoney, UK economist at Handelsbanken, said: ‘It will be important for the government to offer confidence to markets about the credibility of their fiscal plans, which the chancellor currently plans to provide in November. Given market turbulence, it is not unforeseeable for sterling to reach parity with the dollar before that point - although this is not currently our baseline forecast.’
The pound fell to $1.0763 Wednesday evening, up from $1.0756 at the London equities close on Tuesday. The euro increased to $0.9645 from $0.9596 at the European equities close on Tuesday.
A barrel of Brent oil rose to $88.17 from $86.44.
The bank confirmed that the purchases will be ‘strictly time limited’ and ‘fully indemnified by HM Treasury’, referring to the UK government.
Justifying the decision, the Bank of England said that continued dysfunction would be ‘a material risk to UK financial stability’. The BoE's Financial Policy Committee promoted the plan on the grounds of ‘financial stability’.
After a couple rough sessions, UK housebuilders were enjoying a reprieve on Wednesday after the BoE intervention.
Taylor Wimpey, Persimmon, Berekely and Barratt gained 2.3%, 1.6%, 1.9% and 2.9%, respectively. Land Securities and British Land added 6.9% and 5.7%.
Burberry was one of the best performing blue chip stocks, adding 5.5%, after naming 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 said the appointment will be ‘taken well by the market’.
Online retailer boohoo suffered a topsy-turvy session, sinking as low as 7.3% before closing out the day 8.0% higher.
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.
Sportscar maker Aston Martin sunk 6.7%. It has placed the remaining shares offered in its rights issue.
Aston announced the rights issue earlier in September, hoping to raise £575.8 million from the sale 559 million new shares at 103p per share. Earlier Wednesday, Aston Martin said it had received acceptances from existing shareholders for 527.3 million new shares, 94% of the total on offer, meaning there were 31.7 million remaining that were not taken up by shareholders.
Gold was up sharply to $1,653.20 an ounce Wednesday evening, from $1,633.10 at the London equities close on Tuesday.
The dollar faded to JP¥144.41 late Wednesday UK time from JP¥144.79 at the time of the London equities close on Tuesday.
In New York, stocks were in the green. The DJIA was up 0.8%, the S&P 500 index up 1.0%, while the Nasdaq Composite was 0.9% higher.
In the international economic events calendar on Thursday, there is eurozone consumer confidence at 1000 BST, followed by German consumer prices at 1300 BST and US GDP and core personal consumption expenditures at 1330 BST.
In the local corporate calendar, there is annual results from Allergy Therapeutics, and household goods manufacturer McBride. Interim results will be released by retailer Next, HSS Hire oncology drug company Avacta.
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