BOE Announces Expansion Of Bond Purchase Program

Uncertainty around the UK economy and the fragility of UK markets returned to focus this week. The Bank of England announced yesterday that it would double the size of its daily bond purchases from £5 billion to £10 billion ahead of Friday’s termination point for the program.

Additionally, the BOE announced that it would widen the scope of the purchases also to include index-linked gilts. Finally, Threadneedle street announced it would be running a Temporary Expanded Collateral Repo Facility for banks, allowing them to reduce liquidity
pressures for those clients who were impacted by the bond market volatility seen recently. Despite these announcements, UK yields are still pushing higher, suggesting investors are not reassured by the bank’s operations.

Key Factors for Today

- USD higher again – on course for 5th straight positive day
- BOE increases and expands scope of bond purchases
- Equities turn lower amidst rising bond yields, China lockdown fears & fresh Russia-Ukraine violence
- Safe-havens leading in FX, risk currencies lower again
- Metals and commodities turn lower

COMING UP

- CHF SNB’s Jordan speaks
- GBP BOE’s Bailey speaks
- USD Fed’s Mester speaks

Equities Weighed on By Rising Bond Yields

Equities prices continued lower yesterday and are seen under pressure once again over the European open on Tuesday. Bond yields have turned higher again this week, creating headwinds for risk assets. An uptick in violence between Russia and Ukraine has
resharpened geopolitical concerns while a fresh surge in COVID cases in China is prompting fears of further lockdowns to be announced there, hitting risk sentiment.

Nasdaq Hits Fresh 2022 Lows

The Nasdaq was seen breaking down to new lows for the year yesterday, reflecting the deterioration in investor appetite. The move comes in response to the US administration announcing further restrictions on Chinese access to the US semiconductor market.

Tesla Shares Returning to YTD Lows

Shares in Tesla are rapidly returning to YTD lows with price down over 14% this month alone. Tesla is now down around 30% from the summer highs, reflecting the broad deterioration in risk appetite we’ve seen recently. News of Musk’s revived bid for Twitter
has also not helped Tesla stock with many critics warning that Musk’s divided attention will work at a disadvantage for Tesla.

Safe-Havens Stay on Top in FX

In FX, USD remains well-bid on Tuesday. The fall-back in equities and commodities this week is keeping risk currencies pressured lower while safe-havens continue to gain. With little in the way of data, focus today will be on the various central bank speakers scheduled. Fears over rising interest rates and growing recessionary risks look likely to reinforce current market dynamics.

UK Unemployment Rate Falls, Wages Rise

In the UK, the latest employment data release today was mostly positive. The unemployment rate was seen falling back to 3.5% from 3.6% prior while average earnings were seen rising to 6% from 5.5%. On the back of last month’s GDP data being revised higher from -0.1% to 0.2% there is some good news, despite the broader concerns facing the UK economy. However, the uptick in wages suggests that inflation is likely to continue higher near-term, keeping pressure on the BOE.

Metals & Oil Extend Declines

In the metals and commodities space, both gold and silver have turned sharply lower this week. Resurgent strength in the Dollar and rising global bond yields have turned demand away from metals. Oil prices are also softening from recent highs. With the US Dollar back in demand and fears of fresh lockdowns in China over coming months, the impact of the recent OPEC+ supply-cut announcement is subsiding.