As the Bank of England’s boost wears off, the value of the pound falls and stocks stop rising.
Sydney: Asian stock markets went up on Thursday after Britain’s central bank started an emergency programme to buy bonds to stop a run on gilts. However, trade was tense and the value of the pound remained low.
The Bank of England said it will buy up to £5 billion ($5.4 billion) a day in long-term government bonds until October 14. It spent about a billion pounds on Wednesday, and the yield on 30-year gilts fell by 105 basis points (bps), which Refinitiv says is the biggest drop ever in records going back to 1992.
The move helped the pound and calmed the markets, but by the middle of the afternoon in Tokyo, the pound was struggling to find support and was down 1% at $1.0776.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan went up by 0.5%, which was less than Wall Street’s 2% gain overnight. Japan’s Nikkei rose 0.9%. (T)
S&P 500 futures fell 0.2%. Futures for Europe went up 0.6%, and futures for the FTSE went up 0.3%.
Related: Investors bet that the Bank of Canada will lead the G7 in moving rates to neutral.
Finn Robinson from ANZ said, “It’s all a bit of a mess.”
“We don’t know how long the calm and new hope will last. “For one thing, this re-stimulation will make UK inflation worse, not better, which is bad for bonds and the pound.”
Last week, Britain announced tax cuts that couldn’t be paid for. This caused the prices of British assets to drop, which sent shockwaves through the financial markets. After Korea, India, and Indonesia took steps to stabilise their financial markets this week as the U.S. dollar rose, the BoE did the same.
As the yuan remains near its lowest level since the financial crisis, China’s central bank stated that the top priority is to stabilise the foreign exchange market.[CNY/]
Later on Thursday, investors will be paying attention to three speakers from the Bank of England, interviews with British Prime Minister Liz Truss, German inflation data, and speakers from the Federal Reserve.
Eugene Leow, a rates strategist at DBS in Singapore, said, “Note that other than a circuit breaker put in place by BOE, nothing has changed in a fundamental way.”
STRONG DOLLAR
On Wednesday, U.S. Treasuries rose along with gilts, and the benchmark 10-year yield dropped by more than 20 basis points (bps) before going up to 3.818% in Asia.
A drop in the dollar also made things worse. Wednesday was the worst day for the U.S. dollar index in 2 1/2 years. It fell from record highs. Asia, on the other hand, bought dollars all day long, pushing the index up by 0.5% to 113.56. [FRX/]
At $0.9665, the euro fell about 0.7%. At $0.6470, the Australian dollar was down 0.8%. At $0.5674, the Kiwi fell by 1%. [AUD/]
Russia is about to take over a piece of Ukraine. This is a step toward putting a nuclear shield over the whole country. The EU thinks that gas lines under the Baltic Sea were sabotaged.
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“Concerns about growth in China, the euro zone, and other economies have been driving demand for the dollar for months,” said Rabobank FX strategist Jane Foley. She sees a risk that the euro could go even lower than her goal of $0.95.
“Investors have been less willing to take risks for a while now, and this week’s ruckus on the UK market did nothing but hurt their confidence even more.”
The dollar’s drop helped oil and gold go up until Wednesday, but they were going down in Asia. Brent crude futures fell 0.8% to $88.62 a barrel. Spot gold went down by 1% to $1,642 per ounce.
Porsche is putting its cars up for sale in this whirlwind, and the last price was 82.50 euros. Around 7:15 GMT, trading starts.
$1 is worth 0.9252 pounds.
