BoE intervenes to calm markets

Sterling retook some ground against the dollar for a time yesterday getting back to close to $1.09 while UK bonds yields fell sharply following a BoE announcement that it was intervening in the market to buy longer dated UK bonds. However the concerns about the UK have not gone away and the pound come under renewed pressure overnight and starts off this morning having fallen to just below $1.08 again. The Euro also rose against the dollar yesterday – back to over $0.97 – but also retraced its steps this morning and is back below that level. EURGBP is relatively steady at 89p

The Bank of England responded to the rapid rise in UK yields by launching a new temporary programme to buy long dated UK bonds. The purpose of the progamme is to ‘restore orderly market conditions’ and the BoE will purchase up to £5bn per day of UK gilts dated more than 20 years from yesterday until October 14. There was an immediate impact on UK bonds with 10-year yields down 50bps yesterday to just under 4%. Other countries also saw yields fall with German 10-years down 11bps to 2.1% and 10-year US treasuries down over 20bps to around 3.7%. Bond yields are on the rise again everywhere this morning taking back some of those moves, with UK 10-years back up 10bps to 4.1% currently

The news from the UK helped sentiment globally with equities rallying on both sides of the Atlantic. While the FTSE and Eurostoxx made relatively modest gains of 0.3% and 02.% respectively, the S&P 500 in the US gained c.2% – its first daily advance in seven sessions. The futures market ahead of the open this morning suggests however that normal service will resume today with equities set to fall once trading begins

Wednesday was quiet day datawise but we get plenty today, on the agenda is Euro area economic sentiment indicator and German inflation while in the US, we get jobless claims and final Q2 GDP data