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European markets back in the green after Bank’s sharp monetary policy U-turn
28 September 2022, 17:14
The FTSE 100 ended the day 20.8 points higher, or 0.3%, at 7,005.39.
Wednesday marked another day of extraordinary volatility in London markets as the Bank of England made a sharp U-turn on its monetary policy, sending the pound briefly plunging.
The central bank announced it would be stepping in to ease financial markets by launching an emergency gilt-buying programme.
The intervention spurred on an immediate fall in UK long-date gilt yields, effectively bringing down the interest rate on public borrowing after it soared earlier this week.
However, it sent sterling down to around 1.05 against the US dollar immediately following the announcement, before edging back up to 1.083 by the time European markets closed.
The FTSE 100 also went on a rollercoaster ride on Wednesday. It fell sharply in early trading, by around 2% following market losses in the US overnight, before paring back declines.
The index ended the day 20.8 points higher, or 0.3%, at 7,005.39.
The City has been awash with reaction from analysts who have contemplated the short and long-term impacts of the Bank’s intervention.
“Inflation to the left of them, recession to the right, onward into the valley of unorthodox monetary policy go Bank of England Governor Andrew Bailey and the Monetary Policy Committee,” said AJ Bell’s investment director, Russ Mould.
“Just a week after a lower-than-expected interest rate increase and confirmation of plans to sell gilts and start quantitative tightening (QT), the Bank of England is now buying more of them in what looks like more quantitative easing (QE).
“Suffice to say that some will undoubtedly see this as a further sign of just how much trouble the Old Lady of Threadneedle Street is in.”
Others had a more optimistic view on the Bank’s bold move.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “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.
“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.”
European markets had also rallied by the end of the day after seeing sharp declines following the Bank of England’s announcement. The German Dax was 0.36% higher and the French Cac was 0.19% higher when markets closed.
The pound was also up against the euro, at around 0.22% to 1.1181.
Across the pond, confidence in the US markets was strong and its top indices had made substantial gains by the time European markets closed. The S&P 500 was up around 1.4% and Dow Jones was 1.2% higher.
Meanwhile, Brent crude oil was up by 2.67% to 88.57 dollars per barrel.
In company news, shares in Boohoo fell sharply after it told shareholders that it had swung to a loss in the past six months.
The online fashion giant gave a gloomy outlook on sales as it saw a 10% slump in revenues for the half-year compared to a year earlier.
However, its share price had rebounded by Wednesday afternoon and it was up almost 8% when markets closed.
Burberry was back in the news with the announcement of another director stepping down from the firm. The luxury fashion retailer revealed its creative director of five years would be stepping down just days after its chief operating officer announced his departure.
Investors reacted positively to the shake-up plans and its share price was up by more than 5% on Wednesday.
Meanwhile, cinema chain Everyman delivered some good news for the sector, with its chief executive telling shareholders he was optimistic about the group’s prospects amid significant revenue growth.
Shares in Everyman edged up by 1% on Wednesday.
The biggest risers on the FTSE 100 were Land Securities, up 33.7p to 519p, Segro, up 41.6p to 735.6p, British Land, up 19.2p to 353.6p, Burberry Group, up 92p to 1,776.5p, and Fresnillo, up 35.2p to 748.4p.
The biggest fallers on the FTSE 100 were Airtel Africa, down 9.7p to 131.4p, M&G, down 11.1p to 168p, Legal & General Group, down 13.1p to 220.3p, Aviva, down 19.9p to 389p, and Phoenix Group, down 25.6p to 533.2p.