Unprecedented Bank of England intervention avoids Lehman style event

29Sep

Unprecedented Bank of England intervention avoids Lehman style event

 

US equities finished higher in Wednesday trading, ending just off session highs.

The Dow Jones Industrial Average mounted a big comeback from its 2022 low as the Bank of England said it would buy bonds to stabilise its financial markets, the bank stressed it was not seeking to lower long-term government borrowing costs. Instead it sought to buy time to prevent a vicious circle in which pension funds have to sell gilts immediately to meet demands for cash.

“At some point this morning I was worried this was the beginning of the end,” said a senior London-based banker, adding that at one point on Wednesday morning there were no buyers of long-dated UK gilts. “It was not quite a Lehman moment. But it got close.” The daily move in long term gilts was unprecedented with investments banks insisting the BOE intervene.

The expectation was that if there was no intervention today, gilt yields could have gone up to 7-8 per cent from 4.5 per cent this morning and in that situation around 90 per cent of UK pension funds would have run out of collateral.

The move stabilised the British pound, but the $65 billion Bank of England bond purchase program will cause political chaos for the new Truss government and her Chancellor. With the move expected to be inflationary at a time of already high inflation

Overnight the Dow jumped 1.88 per cent, the S&P 500 rose 1.97 per cent and the Nasdaq Composite was up 2.05 per cent. The Dow and the S&P 500 snapped a six-day losing streak.

The rally was broad-based across the sectors. The Energy sector rallied as oil prices rose 4.7 per cent on Wednesday following unexpected drawdowns in US crude and fuel stocks, outweighing downward pressure from the continued strength in the US dollar.

In biotech news, Biogen surged 40 per cent, adding about $15 billion to the company’s market cap, after the company said its experimental Alzheimer’s drug significantly slowed the disease’s progression following a large study. Its partner in the study, Japanese pharmaceutical company Eisai, rose 17 per cent in Tokyo trading.

One notable outlier was Apple which was down about 1.3 per cent after a Bloomberg report, citing people familiar with the matter, said the tech company is ditching plans to increase new iPhone production after demand fell short of expectations.

Investors on Wall Street remained worried that investors have not priced in an earnings slowdown and the impact of the Federal Reserve’s rate hikes. Meaningful dislocations in rate and FX markets continue to drive concerns that "something is going to break."

Billionaire investor Stanley Druckenmiller commented at CNBC’s Investor Summit in New York City on Wednesday how he believes there will be a hard landing by the end of 2023. Druckenmiller said “I will be stunned if we don’t have a recession in ‘23, I don’t know the timing but certainly by the end of ’23.

In currency news

The $US Dollar index was down 1.2 per cent with sterling rallying.

China’s yuan recovered slightly after falling to a 14-year low against the dollar Wednesday despite central bank efforts to stem the slide

Overnight one Australian dollar has strengthened buying 65.27 US cents (Wed: 64.34 US cents), 59.96 Pence Sterling, 94.03 Yen and 67.05 Euro cents.

In Commodity news

Iron ore futures are pointing to a 0.4 per cent gain.

Gold rose about 2 per cent ($US 1670) on Wednesday as a retreat in the dollar rekindled some of its safe-haven appeal,

Silver was up almost 3 per cent to US$18.88 an ounce.

In the copper market, China's rapid build-up of clean energy is claiming more copper, supporting the market at a time when traditional sources of demand like housing are in the dumps. Copper imports are one of the few bright spots in an otherwise bleak picture for Chinese commodities consumption Copper added $7.50 or 2.3 per cent to US$335.85 a pound.

Oil gained $3.65 or 4.7 per cent to US$82.15 a barrel.

Futures

The SPI futures are pointing to a 1.5 per cent gain.
 
Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 0.2 per cent, Frankfurt gained 0.4 per cent while London’s FTSE closed 0.3 per cent higher.

In Asian markets, Tokyo’s Nikkei lost 1.5 per cent, Hong Kong’s Hang Seng closed dropped 3.4 per cent and China’s Shanghai Composite closed 1.6 per cent lower.

Yesterday, the Australian sharemarket lost 0.5 per cent to close at 6462.

Ex-dividends

Australian Unity Office Fund (ASX:AOF) is paying 2.5 cents unfranked
Arena REIT (ASX:ARF) is paying 4.2 cents unfranked
CI Resources (ASX:CII) is paying 1 cent fully franked
Centuria Industrial REIT (ASX:CIP) is paying 4 cents unfranked
Charter Hall Long WALE REIT (ASX:CLW) is paying 7 cents unfranked
Cromwell Property Group (ASX:CMW) is paying 1.375 cents unfranked
Centuria Office REIT (ASX:COF) is paying 3.525 cents unfranked
Charter Hall Social Infrastructure REIT (ASX:CQE) is paying 4.3 cents unfranked
Coventry Group (ASX:CYG) is paying 3.5 cents fully franked
Dexus Convenience Retail REIT (ASX:DXC) is paying 5.3 cents unfranked
Dexus Industria REIT (ASX:DXI) is paying 4.1 cents unfranked
Elanor Commercial Property Fund I (ASX:ECF) is paying 2.35 cents unfranked
Energy One (ASX:EOL) is paying 6 cents unfranked
Gryphon Capital (ASX:GCI) is paying 1.1 cents unfranked
Garda Diversified Property Fund (ASX:GDF) is paying 1.8 cents unfranked
Healthco Healthcare and Wellness Reit (ASX:HCW) is paying 1.875 cents unfranked
Homeco Daily Needs (ASX:HDN) is paying 2.075 cents unfranked
Kkr Credit Income Fund (ASX:KKC) is paying 1.0938 cents unfranked
Link Administration Holdings (ASX:LNK) is paying 8 cents fully franked
Magontec (ASX:MGL) is paying 0.6 cents unfranked
Newmark Property (ASX:NPR) is paying 2.5 cents unfranked
Perpetual Credit Income Trust (ASX:PCI) is paying 0.4653 cents unfranked
RAM Essential Services Property Fund (ASX:REP) is paying 1.4541 cents unfranked
Rural Funds Group (ASX:RFF) is paying 2.9337 cents unfranked
Sigma Health (ASX:SIG) is paying 0.5 cents fully franked
SKS Tech Group (ASX:SKS) is paying 0.25 cents unfranked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked
360 Capital REIT (ASX:TOT) is paying 1.5 cents unfranked
Waypoint REIT (ASX:WPR) is paying 3.95 cents unfranked
XRF Scientific (ASX:XRF) is paying 2.5 cents fully franked

Dividends payable

APM Human Services International (ASX:APM)
Ariadne Australia (ASX:ARA)
Bendigo And Adelaide Bank (ASX:BEN)
Bravura Solutions (ASX:BVS)
Centrepoint Alliance (ASX:CAF)
Commonwealth Bank Of Australia (ASX:CBA)
Fortescue Metals Group (ASX:FMG)
GQG Partners Inc (ASX:GQG)
Idp Education (ASX:IEL)
Insignia Financial (ASX:IFL)
Medibank Private (ASX:MPL)
Newcrest Mining (ASX:NCM)
Northern Star Resources (ASX:NST)
Netwealth Group (ASX:NWL)
Ramsay Health Care (ASX:RHC)
Universal Store Holdings (ASX:UNI)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
Copyright 2022 – Finance News Network


Source: Finance News Network

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