GBP Whipsaws after BOE Intervenes to save Gilt market and avert pension crisis

The Bank of England was forced to take emergency action yesterday. Following Monday’s statement which declared that it would not be using an emergency rate-hike ahead of the November meeting, the BOE then took markets by surprise as it announced that it would purchase £65 billion in UK government debt over the next 13 days in a bid to bring yields down and avert a run-on pension funds.

The shock announcement was met with an immediate market response, driving equities higher across the board as yield softened, despite further hawkish Fed commentary. US T-yields saw their largest one day drop since 2009 as the US Dollar reversed sharply lower on the day. However, with UK chancellor Kwarteng confirming that the UK government will not revise or reverse last week’s tax cuts, the situation remains highly precarious.

Key Factors for Today

- USD rally resumes following sharp drop yesterday
- Markets were buoyed by BOE surprise bond-purchase news, driving yields lower
- BOE to buy £65 billion in bonds over next two weeks
- GBP back under pressure today – risk currencies falling as equities soften again
- Metals and oil benefited from USD drop yesterday

Coming Up

- CAD Canadian GDP m/m
- USD US Final GDP q/q
- NZD RBNZ’s Orr speaks

Equities Rallied on BOE News But Back Under pressure Today

Equities markets saw plenty of volatility again yesterday. The BOE’s surprise intervention helped underpin tumbling markets, driving a relief rally in risk assets which saw the S&P reversing over 3% higher, having traded to fresh 2020 lows earlier in the session. In the UK, the FTSE jumped by 3% also to finish the day in the green. However, UK asset prices are back under heavy selling pressure across the European open today, reflecting persistent market nerves.

Apple Scraps Production Increase – Netflix To Open Gaming Studio

Apple shares had been trading lower initially yesterday in response to news that the it will scrap its planned production increase for the Iphone14. The newly released phone has not seen the anticipated demand Apple was looking for and so it has decided to refrain from beefing up production. Netflix, meanwhile, saw its shares surging higher in response to news that it will open a gaming studio, following purchases made in 2021.

Porsche IPO Second Largest in German History

Porsche shares will officially begin trading today following confirmation from Volkswagen yesterday that the new spun off Porcsche SE will be priced at the top end of the range at 82.50 EUR, split over 911 million shares. This makes the IPO the second largest in German history.

USD Back in Business Today – GBP Falling Again

In FX, following yesterday’s reversal lower (which saw the DXY dropping almost 2% on the day) USD is back in demand on Thursday. The greenback is leading in FX today suggesting that yesterday’s broad-based market-reaction to the BOE’s announcement might be short lived. Risk currencies are back under pressure as the Dollar rally restarts. On the data sheet today we have monthly GDP for CAD as well as final US GDP. We also have further Fed speakers on deck as well as RBNZ governor Orr. GBP is in the red again today as price begins its third session within Monday’s range.

Metals & Commodities Helped By Yesterday’s USD Drop

In the metals and commodities space, both gold and silver were seen making strong gains yesterday, reversing higher as USD came under pressure. However, a return to form for US today is dragging prices lower again. Crude prices were higher yesterday also helped by a surprise drawdown reported by the EIA, as well as the fall in USD.