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BoE intervention helps lift global stock markets

2022-09-29 HKT 03:40
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  • Wall Street gained after the Bank of England intervention. File photo: Shutterstock
    Wall Street gained after the Bank of England intervention. File photo: Shutterstock
Global equity markets rallied on Wednesday in a volatile trading, with investors given an "energy boost" by an intervention by the Bank of England.

But geopolitical tensions continued to temper enthusiasm, analysts said, with heightened Ukraine tensions and looming recession fears.

Wall Street stocks traded up after the Bank of England's surprise intervention in the British bond market pushed down bond yields in Britain and the United States.

The Dow Jones Industrial Average finished up 1.9 percent at 29,683.

The S&P 500 gained 2.0 percent to 3,719, while the Nasdaq Composite Index jumped 2.1 percent to 11,051.

In London, the FTSE 100 closed 0.3 percent higher, in Frankfurt, the DAX ended 0.4 percent higher, and in Paris the CAC 40 rose 0.2 percent.

The British pound strengthened slightly to US$1.0748, up from US$1.0730 on Tuesday

Oil prices rose, with West Texas Intermediate jumping 2.9 percent to US$80.77 per barrel

Following a historic slump in the pound, the BoE announced it was temporarily buying up long-dated UK government bonds "to restore orderly market conditions."

"The BoE intervention helped cooling the (dollar) strength and give an energy boost to the market," said Ipek Ozkardeskaya, senior analyst at Swissquote bank.

The UK government's 30-year bond yield retreated to 4.44 percent after the announcement, having hit a 1998 peak at 5.14 percent.

The yield on the 10-year US Treasury note -- a closely-watched proxy of US interest rates -- also pulled back as analysts said the BoE manoeuvre had "soothed" investors in the short run.

Britain's new finance minister Kwasi Kwarteng's tax-cutting budget sent shockwaves through markets, pushing the pound to a record low and leading to dire warnings for Britain's economy -- though sterling later rallied against the US currency.

The BoE intervention followed rare criticism from the International Monetary Fund, which argued that Britain's recent budget could increase inequality and worsen inflation.

"The BoE's intervention is an attempt to soothe investor nerves after they were spooked by last week's mini-budget," said City Index analyst Fawad Razaqzada.

After early losses, major indices in London, Frankfurt and Paris all closed up on Wednesday.

Analysts warned of looming risks in the shape of soft economic data and crumbling earning expectations.

"Fear of tightening-induced recessions has wiped out the recovery we saw in stock markets over the bulk of the summer as investors were once again burned by an over-eagerness to catch the bottom in the market, despite there being little evidence of it being justified," said OANDA's Craig Erlam.

"That fear has now gripped the markets and we may see a little more caution going forward," Erlam said.

Sentiment was also rattled by worries about developments in Ukraine, after Kremlin-installed authorities in four regions under Russian control claimed victory in annexation votes, with Moscow warning it could use nuclear weapons to defend the territories.

Ukraine and its allies have denounced the so-called referendums as a sham, saying the West would never recognise the results.

Volatile oil prices also rose Wednesday, as the EU proposed a new round of sanctions on Moscow, including a possible oil price cap.

Leaks from two Russia-Germany undersea gas pipelines -- which the EU said were caused by deliberate sabotage -- also threatened to fuel further tensions in the energy conflict. (AFP)
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Last updated: 2022-09-29 HKT 04:37