Sterling slippery, stocks stalling as BoE boost fades

Asian markets rise but trading remains skittish

Asian share markets rose on Thursday after Britain’s central bank launched an emergency bond buying programme to stabilise a furious sell-off in gilts, though trade was skittish and sterling remained under pressure.

The Bank of England said it will buy as much as £5 billion (€5.6 billion) a day of long-dated government bonds until October 14th. It spent about a billion pounds on Wednesday and 30-year gilt yields fell 105 basis points (bps), the biggest drop ever according to Refinitiv records stretching back to 1992.

The move buoyed sterling and offered some salve to a fractious mood in markets, but by mid afternoon in Tokyo the pound was struggling for support and down 1 per cent at $1.0776.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent - more muted than a 2 per cent surge on Wall Street overnight. Japan's Nikkei rose 0.9 per cent.


S&P 500 futures fell 0.2 per cent. European futures rose 0.6 per cent and FTSE futures lifted 0.3 per cent.

"It's all a bit of a mess," said ANZ economist Finn Robinson.

"How long the calm and fresh optimism lasts remains to be seen. For one, this re-stimulation will lift, not quell UK inflation, and that's bad for bonds and sterling."

The fallout from unfunded tax cuts announced in Britain last week has reverberated across financial markets after setting off a collapse in British asset prices. The BoE's intervention followed steps in Korea, India and Indonesia to stabilise their financial markets this week as the U.S. dollar rallied broadly.

China's central bank said stabilising the foreign exchange market is the top priority, as the yuan hangs around its lowest levels since the financial crisis.

Later on Thursday, investors' focus will be on three Bank of England speakers, media appearances from British Prime Minister Liz Truss, German inflation data and Federal Reserve speakers.

"Note that nothing has fundamentally changed other than a circuit breaker provided by BOE," said DBS' rates strategist Eugene Leow in Singapore.

Strong dollar

US Treasuries rebounded in sympathy with gilts on Wednesday, and benchmark 10-year yields fell more than 20 bps, before creeping up to 3.818 per cent in Asia.

A drop in the dollar was also unwinding. The U.S. dollar index had its worst session in 2-1/2 years on Wednesday, recoiling from record highs. But the greenback found buyers all day in Asia, grinding the index up by 0.5 per cent to 113.56.

The euro fell about 0.7 per cent to $0.9665. The Australian dollar fell 0.8 per cent to $0.6470. The kiwi fell 1 per cent to $0.5674.

Russia is about to annex a swath of Ukraine, a step to extending its nuclear umbrella over them. The EU suspects sabotage of gas pipes beneath the Baltic Sea.

"Concerns over growth in China, the euro zone and various other economies have been underpinning demand for the dollar for months," said Rabobank FX strategist Jane Foley, who has a target for $0.95 on the euro and sees a risk it goes even lower.

"Given that risk appetite has been on the back foot for some time, the ructions in the UK market this week only served to undermine investor confidence further."

The dollar's pullback helped oil and gold make gains through Wednesday, which were slipping slightly in Asia. Brent crude futures fell 0.8 per cent to $88.62 a barrel. Spot gold fell 1 per cent to $1,642 an ounce.

Into this maelstrom Porsche is listing, with books closing at a price of €82.50. Trade began around 0715 GMT. - Reuters