The US and European stock markets rebounded slightly on Wednesday after the Bank of England said it would intervene in the bond market to curb the devastating rise in borrowing costs. Investors were alarmed last week, particularly by a sharp rise in bond yields. Central Banks sought to raise interest rates to rein in red-hot inflation before it sent the global economy into recession. As the stock market closed yesterday, the Dow Jones Index (US30) added 1.88%, and the S&P 500 Index (US500) increased by 1.97%. Technology index NASDAQ (US100) gained 2.39% on the day.
FOMC spokesman Bostick said yesterday that the baseline interest rate hike was 75 basis points at the November meeting and 50 basis points in December.
According to the US National Association of Realtors, pending home sales declined for the third straight month in August. Compared to a year ago, pending transactions were down 24.2%. The Index is now down to 88.4. The 100 Index is in line with contract activity in 2001.
Equity markets in Europe were also mostly up yesterday. German DAX (DE30) gained 0.36%, French CAC 40 (FR40) added 0.19%, Spanish IBEX 35 (ES35) declined by 0.05%, British FTSE 100 (UK100) closed yesterday at plus 0.30%.
The Bank of England announced Wednesday that it would buy as many UK government bonds as necessary to stabilize debt markets and delay the start date of its bond sales. The central bank explained that if yields rise higher, it could lead to an unjustified tightening of funding conditions and reduce the flow of credit to the real economy. The Bank of England said in a statement that "the Bank of England's Financial Policy Committee recognized the market risks, recommended an intervention, and proposed a plan to buy bonds urgently." At the same time, the Bank of England will postpone the start of its quantitative tightening program (QT).
The UK housing market could face a perfect storm as mortgage rates rise and house prices fall. Rising borrowing costs and a likely slowdown in economic growth threaten to trigger a sell-off in the British housing market, with consequences for personal wealth and the economy as a whole. Mortgage deals for new customers now have rates around 5%-6%, a sharp increase from the norm of around 2%.
The International Monetary Fund (IMF) and rating agency Moody's criticized Britain's new economic strategy announced Friday, which caused British asset prices to collapse.
Oil prices rose on Wednesday as production cuts caused by Hurricane Yang outweighed downward pressure from a strengthening dollar. About 190,000 barrels a day of oil production in the Gulf of Mexico, or 11% of total production, was halted because of Hurricane Yang, according to US government data.
The US will oppose parts of Ukraine from becoming part of Russia, including through the United Nations, and will impose additional economic sanctions.
Asia's major stock indices fell sharply on Wednesday. Japan's Nikkei 225 (JP225) decreased by 1.50%, Hong Kong's Hang Seng (HK50) ended the day down by 3.41%, and Australia's S&P/ASX 200 (AU200) lost 0.53% yesterday.
The New Zealand dollar fell to its lowest level against the US dollar in more than two years. The currency has fallen nearly 3% over the past week as financial markets reacted to sharp rate hikes imposed by central banks to fight inflation.
The ANZ Business Confidence Index showed that inflation in New Zealand and higher interest rates negatively affect business sentiment. The RBNZ currently holds one of the highest interest rates among major economies and ranks second behind the Bank of Canada and the US Federal Reserve at 3.25%. Analysts expect another 25 basis point increase from the RBNZ, but it is also possible that New Zealand's Central Bank is nearing the end of its hiking cycle.
S&P 500 (F) (US500) 3,719.04 +71.75 (+1.97%)
Dow Jones (US30) 29,683.74 +548.75 (+1.88%)
DAX (DE40) 12,183.28 +43.60 (+0.36%)
FTSE 100 (UK100) 7,005.39 +20.80 (+0.30%)
USD Index 112.72 -1.39 (-1.22%)
- – New Zealand ANZ Business Confidence (m/m) at 03:00 (GMT+3);
- – Eurozone Spanish CPI (q/q) at 10:00 (GMT+3);
- – Eurozone German CPI (q/q) at 15:00 (GMT+3);
- – US GDP (q/q) at 15:30 (GMT+3);
- – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
- – Canada GDP (m/m) at 15:30 (GMT+3);
- – New Zealand RBNZ Gov Orr Speaks at 16:00 (GMT+3);
- – US FOMC Member Bullard Speaks at 16:30 (GMT+3);
- – US Natural Gas Storage (w/w) at 17:30 (GMT+3);
- – US FOMC Member Mester Speaks at 20:00 (GMT+3).
by , 2022.09.29
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