Bank of England forced to step in to protect economy

written on September 29, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities ended Wednesday’s session with solid gains to partially recover from a recent plunge to lows not seen since 2020. The Dow Jones Industrial Average rose 1.9%, the S&P 500 Index was up 2.0%, and the Nasdaq Composite rallied 2.1%. In Europe, equity markets finished mixed, bouncing back from early losses, with the Euro Stoxx 50 Index ending modestly higher by 0.2%. 

Summary

  • Asian equity markets followed Wall Street higher this morning, with the ASX jumping near 2% while the Hang Seng and the Kospi climbed more than 1%, each. Markets in Japan and China also tried to bounce back from multi-month lows. 
  • European equity futures nudged up this morning while the US counterparts took a breather after yesterday’s big market rally. 
  • Oil prices were lower early Thursday morning as a strong dollar and economic woes outweighed optimism over consumer demand. 
  • The Bank of England announced yesterday it will start carrying out temporary purchases of long-dated UK government bonds until 14th October to restore orderly market conditions. These purchases will be strictly time-limited and are intended to tackle a specific problem in the long-dated government bond market. The central bank also said the MPC’s annual target of an £80bn stock reduction is unaffected and unchanged. 
  • The European Union proposed a new package of sanctions on Russia that would ban European companies from shipping Russian oil to third countries above an internationally set price cap. European Commission President Ursula von der Leyen said the EU will propose a “sweeping” new import ban on Russian products that would cost the country €7 billion in revenue, as well as prohibit the sale of key technologies that could benefit its military. 
  • Shares of Biogen Inc surged nearly 40% yesterday after reporting, along with its Japanese partner, Eisai Co. Ltd., that a study showed their experimental Alzheimer’s drug significantly slowed the progression of the disease. 
  • V.F. Corporation lowered its full-year earnings guidance on Wednesday, citing ongoing uncertainty in the current environment, weaker-than-expected back-to-school performance at its Vans footwear segment, and increasing inventories leading to a more promotional environment in North America in the fall. The company also announced a non-cash impairment charge at its apparel and footwear company as a result of higher interest rates and foreign currency fluctuations. 

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