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LONDON MARKET CLOSE: FTSE 100 moves into green as BoE soothes fears

28th Sep 2022 17:07

(Alliance News) - The FTSE 100 moved into the green in afternoon trading on Wednesday, reversing the losses seen earlier in the session, after the Bank of England announced it will be temporarily buying long-dated UK bonds.

The central bank said the purpose of the "purchases will be to restore orderly market conditions" after UK government bonds were significantly affected by "repricing". The purchases, which will start on Wednesday, will be carried out on "whatever scale is necessary to effect this outcome."

The pound was lower after the announcement, but the UK government's 30-year bond yield retreated to 4.44%, having hit a 1998 peak at 5.14%, and slipped even further to 3.93% as the session dragged on. The yield was sitting around 4.96% before the London equities market opened on Wednesday.

"The Bank of England’s u-turn - at least for now - on QE has given embattled buyers a reason to step back into the market," Chris Beauchamp, chief market analyst at IG, said.

"While it might not be the big QE programmes of old, it seems the bank's willingness to intervene is being taken as a good sign, especially compared to its inaction earlier in the week."

The FTSE 100 index closed up 20.80 points, or 0.3%, at 7,005.39 on Wednesday. It had been down around 2% in earlier dealings, falling as low as 6,836.34 points, its weakest intraday level since early March.

The mid-cap FTSE 250 index ended up 16.86 points, or 0.1%, at 17,320.97. The midcaps had spent the entire session in the red before late buying. The AIM All-Share index closed down 7.37 points, or 0.9%, at 813.98.

The Cboe UK 100 index closed up 0.1% at 698.81. The Cboe 250 ended down 0.1% at 14,817.68, and the Cboe Small Companies closed down 0.4% at 12,697.26.

The CAC 40 stock index in Paris closed up 0.2%, while the DAX 40 in Frankfurt added 0.4%.

Sterling regained its poise, too.

IG's Beauchamp said: "Indeed, the BoE’s move might mark the low for now in risk assets. The pound is back above USD1.07, the euro is higher against the dollar and oil prices are rallying too. Of course this doesn’t change the bleaker medium-term view, but after the recent wave of selling there’s hope for a bounce in the short-term."

The pound fell to USD1.0763 Wednesday evening, up from USD1.0756 at the London equities close on Tuesday. The euro increased to USD0.9645 from USD0.9596 at the European equities close on Tuesday.

A barrel of Brent oil rose to USD88.17 from USD86.44.

The bank confirmed that the purchases will be "strictly time limited" and "fully indemnified by HM Treasury", referring to the UK government.

Justifying the decision, the Bank of England said that continued dysfunction would be "a material risk to UK financial stability". The BoE's Financial Policy Committee promoted the plan on the grounds of "financial stability".

After a couple rough sessions, UK housebuilders were enjoying a reprieve on Wednesday after the BoE intervention.

Taylor Wimpey, Persimmon, Berekely and Barratt gained 2.3%, 1.6%, 1.9% and 2.9%, respectively. Land Securities and British Land added 6.9% and 5.7%.

Burberry was one of the best performing blue chip stocks, adding 5.5%, after naming Daniel Lee as its new creative chief, replacing Riccardo Tisci.

The London-based fashion retailer said Tisci will leave at the end of this month after almost five years in the post as chief creative officer.

Burberry hailed Tisci for improving the brand's fortunes, including offering it much-needed relevance with younger shoppers. Lee's debut runway collection for Burberry will be presented at London Fashion Week in February 2023.

UBS said the appointment will be "taken well by the market".

Online retailer boohoo suffered a topsy-turvy session, sinking as low as 7.3% before closing out the day 8.0% higher.

boohoo swung to a first-half loss, with earnings hurt by weak consumer confidence and a staggering number of clothing returns. Return rates were "up significantly year-on-year", boohoo said.

In the six months to August 31, revenue fell 10% year-on-year to GBP882.4 million from GBP975.9 million. Revenue was up 56% from pre-virus levels, however. boohoo swung to a GBP15.2 million pretax loss from a GBP24.6 million profit a year earlier.

Margins weakened markedly. Its adjusted earnings before interest, tax, depreciation and amortisation margin fell to 4.0% from 8.7%.

boohoo now expects an annual adjusted Ebitda margin between 3% and 5%, trimmed from its previous 4% to 7% guidance range.

Sportscar maker Aston Martin sunk 6.7%. It has placed the remaining shares offered in its rights issue.

Aston announced the rights issue earlier in September, hoping to raise GBP575.8 million from the sale 559 million new shares at 103p per share. Earlier Wednesday, Aston Martin said it had received acceptances from existing shareholders for 527.3 million new shares, 94% of the total on offer, meaning there were 31.7 million remaining that were not taken up by shareholders.

Fawad Razaqzada, market analyst at City Index and FOREX.com, noted the BoE's emergency bond-buying move has seen gold move sharply higher.

Gold was up sharply to USD1,653.20 an ounce Wednesday evening, from USD1,633.10 at the London equities close on Tuesday.

"The intervention by the BoE has given rise to speculation that other central banks might follow suit in a similar way. It remains to be seen whether this will be the case. But traders are buying bonds today and will be asking questions later," Razaqzada said.

"With yields sinking, gold has finally managed to find some buying interest, with the metal able to climb back to the base of the recent breakdown around USD1,655. Whether or not it can kick on from here remains to be seen. But bullish speculators will not be too excited about a gold recovery until it has formed a higher high and broken out of its bearish channel. It is definitely one to watch though!"

The dollar faded to JPY144.41 late Wednesday UK time from JPY144.79 at the time of the London equities close on Tuesday.

In the international economic events calendar on Thursday, there is eurozone consumer confidence at 1000 BST, followed by German consumer prices at 1300 BST and US GDP and core personal consumption expenditures at 1330 BST.

In the local corporate calendar, there is annual results from Allergy Therapeutics, and household goods manufacturer McBride. Interim results will be released by retailer Next, HSS Hire oncology drug company Avacta.

By Paul McGowan; [email protected]

Copyright 2022 Alliance News Limited. All Rights Reserved.

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