(Updates to U.S. afternoon trading, adds analyst comments)
U.S. stocks rebound after hitting new lows on Tuesday
UK gilts roar higher as Bank of England intervenes
U.S. dollar pauses record gains as UK pound stabilizes
Oil prices jump on Hurricane Ian cuts
Sept 28 (Reuters) - U.S. and global equities staged a
partial comeback on Wednesday as the Bank of England said it
would step in to the bond market to stem a damaging rise in
borrowing costs, an attempt to dampen investors' fears of
contagion across the financial system.
The BoE said it would temporarily buy long-dated bonds -
linked most closely to workers' pensions and home loans - in
light of a surge in UK bond yields to their highest level in
Sterling, which hit record lows against the dollar
on Monday, was last up about 1.37% in volatile trading, while
gilt prices roared higher, fuelled by the central bank's
commitment to postpone a planned sale aimed at reducing the
bonds it bought during the depths of the pandemic.
European government bonds also got a lift from the surge in
Investors have been rattled in the last week in particular
by soaring bond yields, as central bankers have raced to raise
interest rates to contain red-hot inflation before it tips the
global economy into recession.
The dollar, the ultimate safe-haven in times of market
turmoil, was down 1.25%, off two-decade highs, spurred on by
yields on the benchmark 10-year Treasury
approaching 4.0% for the first time since 2008.
The MSCI All-World index was last up about
1.1%, having pulled off a session trough that marked its lowest
level since November 2020. It is heading for a nearly 8% drop in
September - its biggest monthly decline since March 2020's fall
In Europe, the STOXX 600 and FTSE 100 both
pared losses to gain about 0.3% on the day.
Wall Street's rebound gained momentum over the day, with the
S&P 500 Index up about 1.6% after it fell to a two year
low on Tuesday. The Dow Jones Industrial Average gained
1.6% and the Nasdaq Composite was up 1.5%.
Weighing on growth stocks was Apple Inc, which was
down about 3% on a report the tech company was dropping its
plans to boost production of the latest model of its flagship
Bryce Doty, senior portfolio manager for Sit Fixed Income
Advisors LLC in Minneapolis, said the UK intervention had helped
calm U.S. markets, but that the "temporary stability is
something of an illusion."
Doty cited the widening gap between 10-year treasury yields
and 30-year mortgage rates, which he attributed to the Fed
reducing its mortgage securities and the sharp inversion of the
yield curve resulting from the Feds "aggressive determination
to damage economic activity."
UK MARKETS STORM
At the heart of this week's sell-off across global markets
is the British government's so-called mini-budget last week
which announced a raft of tax cuts and little in the way of
detail as to how those would be funded.
The International Monetary Fund (IMF) and ratings agency
Moody's criticised Britain's new economic strategy announced on
Friday, which has sparked a collapse in the value of British
Strategists at Amundi, Europe's largest asset manager, said
earlier on Wednesday they believed UK assets were in for more
losses, as the UK's fiscal credibility remained on the line.
"We believe risks remain tilted to the downside given how
much is already priced-in, less aggressive signalling from the
BoE will accelerate the move to below parity (for
sterling/dollar), in our view," strategists led by Laurent
Crosnier, global head of FX, wrote, recommending investors avoid
Oil prices rose on Wednesday in U.S. trading hours as
production cuts caused by Hurricane Ian outweighed downward
pressure from a strengthening dollar and expected U.S. crude
stockpile builds. U.S. crude rose 3.66% to $81.37 per
barrel and Brent was at $88.83, up 2.97% on the day.
Spot gold added 2.0% to $1,661.49 an ounce. U.S. gold
futures fell 0.30% to $1,621.80 an ounce.
Scott Wren, senior global market strategist at Wells Fargo
Investment Institute, said markets may already be pricing in
"Should the economy slow and eventually fall into recession
and inflation stays higher for longer, we believe financial
asset prices have adjusted to reflect this likely reality," Wren
wrote in a client note released on Wednesday. "Eventually,
brighter skies will be on the horizon."
(Reporting by Lawrence Delevingne in Boston and Amanada Cooper
Additional reporting by Wayne Cole in Sydney
Editing by Mark Potter and Matthew Lewis)