Confusion Around BOE Bond Purchase Program Causing Volatility

There was plenty of volatility in GBP and UK assets yesterday linked to confusion and contradicting reports regarding the BOE. GBP sank initially as BOE governor Bailey warned pension funds to get their houses in order before Friday, confirming that the bank’s
emergency bond purchase program would come to a close as planned.

However, GBP was then seen rallying in response to the FT running a piece citing three sources, each saying that the BOE was prepared to extend the scheme beyond Friday if necessary. There are fears that, if the scheme does close out on Friday, GBP will tank again as bond yields rise. Traders are now awaiting further details on the issue, with GBP seeing a light bid across the European open on Wednesday.

Key Factors for Today

- USD softer at the European open – traders await PPI and FOMC minutes
- Equities stabilise
- BOE under scrutiny over bond purchase plans
- NZD leads in FX, risk rebound – GBP hit by negative GDP data
- Metals and oil stabilise as the USD softens

Coming Up

- EUR ECB’s Lagarde speaks
- USD FOMC Minutes (Sep)
- USD US PPI

Equities Stabilising As USD Rally Pauses (For Now)

Equities prices remain volatile into the middle of the week though we are seeing some green across the open on Wednesday. A softer start for the US Dollar is fuelling some tentative demand in places. The S&P and the Nasdaq are in the green today, clinging to
current lows. US PPI data later, however, threatens to send equities lower again if we see any USD upside in response. We’ll also receive the latest FOMC minutes, which are highly likely to be hawkish, raising risks of fresh downside in equities.

German Pharma Rallies on Debt-Financing News

In Europe, the DAX and FTSE are both a little higher today despite fresh fears over escalating violence between Russia and Ukraine. In terms of big moves, German Scpharmaceuticals Inc has seen a spike of over 30% in share price today following news that it has agreed to a $100 million debt-financing deal with Oaktree. This deal will allow for the commercial US rollout of new drug FUROSCIIX, used to treat heart failure. Analyst upgrades for the stock on the back of the news are helping push prices higher today.

NZD Leads in FX

In FX, a more tepid start for the Dollar on Wednesday has allowed other currencies to rebound somewhat. Moves are light so far, reflecting caution ahead of today’s US data, particularly tomorrow’s US CPI release. NZD has taken the lead as the strongest risk
currency, benefiting from the recent rates pivot from the RBA, which has seen AUD fall from favour.

UK GDP Turns Negative

In the UK, the latest monthly GDP figures painted a dismal picture, falling to -0.3% m/m from the prior month’s (upwardly revised) 0.2% reading. Given the current concerns around bond market turmoil and the broader economic outlook, the data is curtailing GBP upside today.

Metals & Commodities Benefit from Softer USD

In the metals and commodities space, both gold and silver paused in their declines on Wednesday while USD treads water. However, both metals look vulnerable to decline further if we see another higher push in USD on the back of data surprises today. Oil prices are starting the European session on Wednesday in the green, benefiting from a softer USD. The weekly EIA inventories update will be delayed until tomorrow this week because of the US holiday on Monday.